Friday, 19 February 2016

The Bear Is on the Prowl. What Should You Do?

Stock markets have again entered the bear territory. The reasons cited are many, ranging from the falling crude to the slowing China, to the US Fed increasing rates. Analysts and experts are suggesting that you should delay buying stocks as they can fall even more from here. They are asking you to stay away from certain “risky” companies and take shelter in “defensives.” Some of them have shunned the job of advising on shares and are asking you to buy mutual funds, thus passing the buck to fund managers. The financial community is speculating whether 2008 is back. 

I don't know whether 2008 is back. What I know is the way specialists are reacting and confusing the layman isn't new. In Stock Market Investing for Employees, I have dedicated a full chapter to stock-market crises and how to handle them. This chapter was important as crises are inseparable from the stock market. They will happen whether you like it or not. And when they happen, you need to do just nothing. You just need to stick to your stock strategy. Should you delay buying? No. If you have money, you should be buying no matter where the market is headed. If you wait for the ultimate market bottom, you may be waiting forever. The market may rebound and you may be left waiting.

The views of the financial community are pointless because they are not absolute. They are a function of the way the market is moving. If the market goes up, the financial community will support the rise with positive arguments. If the market falls, it will find enough doom-and-gloom reasons to worry about. The result: The average stock investor is clueless as always. 

As a stock investor, you would do well by focusing on the company rather than on the market itself. If the company deserves buying, you should be buying it. Don't wait for the elusive “better” deal. History does repeat itself in that market downturns do happen. The best response to them is to do whatever you would have done if they weren't there.  

Saturday, 6 February 2016

Should you invest for growth or for value? It doesn’t matter.

The world of stock investing is not only full of jargon but also theories. Two theories of the many theories are growth investing and value investing. Going by conventional definitions, growth investing seeks to invest in those companies that have above-average chances of growing their revenues. Value investing, on the other hand, is about investing in those companies that are unappreciated at the moment and could get rerated.

Which is better? Which should you follow? It hardly matters.

When you invest in stocks, you are always better off keeping it simple. How does it matter if it's a growth company or a value company? Remember just one aim: Make money. You invest for no other reason but to make money. It doesn't matter what theory you apply.

Growth investing and value investing aren't the only two forms. There is “momentum” investing and there is dividend investing and what not. The financial community has devised numerous terms to make stock investing confusing for the layman. What's more, when investors practice one theory, they feel that that's the best theory. They show more allegiance to their theory than the obvious aim of making money, which only limits their options, outlook, and prospects of success.

Why be just a value investor? Why be just a growth investor? If you can make money in multiple ways, why stop yourself. The more ways of thinking you have the better investor you become. As a matter of fact, if you can keep conflicting ideas and use them as needed, you can do really well—at least in the stock market.