Sunday, June 3, 2012

Invest in Index funds when Markets are in Panic

In a previous post, I had advocated the use of Index Funds for Investing. My point was: it is not possible to identify the stocks that will outperform the Index. For Investors, it is wise to invest in Index Funds and trade in stocks.

Now, the same advise comes from Jeffrey Carter who advises investing in Index Funds. In a post titled "What Average Investors should do In Market Panics and Meltdowns", the advise is:

Quote:
Don’t pick individual stocks. Making money in them is like doing heroin. It feels good for awhile, but then the habit gets ever more expensive. Eventually, you lose.

Instead, take your money and put it in a no load mutual fund that replicates the broad indexes, like the S&P 500, the Russell 2000 or something like that. Over the long haul, you won’t lose. You also won’t pay many fees. Investing is practically free. 

Once you put your money into a fund like that, ignore the news. Don’t look at the day to day gyrations of the market. Just consistently put money away. When the market dives like it has the past few days, you are buying cheaper. When it rallies like it did earlier this year, you are buying at a higher price. But the sum of your actions will be an even price over time and your money will grow at around an 8% clip. When you are old and gray, you will have a nice nest egg to spend on yourself at retirement.

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6 comments:

rebeck carvalho said...

How to Arbitrage in
Buy and Sell Spread in Futures Market
???

Vasant kumar said...

yupp...I partially agree....... if the mkt falls, this time it would be the sell for stocks you would probably dreamt of buying like IT giants, Asian paints, Bata India, Godrej Ind, Apollo tyres, Tata motors etc... Just short them and wait for some time But the market should go down......secondly, Every mkt cycle has one particular high volatile sector, 2001----IT sector, 2005-2009 Real estate, 2009-2011 Banking sector and nowww.....Textiles???? Sudarshan Sir, Please give me some feedback to enhance or correct my ideas.... Please sir

Amateur trader said...

Hi Sudarshan,

This might sound like a very stupid question but a very basic information. For intra-day trades one has an option of setting the market hours on his charting terminal where the prices beyond that time will get ignored. Do you suggest a time of 9 am or 9:15 to be set for Nifty.
I have witnessed variations in back testing results in both time frames.
Please suggest.

Vasant kumar said...

Hi Sir, Could you please confirm a H&S pattern breakout in M&M and HUL and Huge possible downside possible. Thanks

Jitender Yadav said...

Respected Sir,
Just finished reading an article in Moneylife, it says "the Sensex is at the same levels as it was in September 2007.In 1994, the Sensex was just over 4,400.By April 2003,after 9 long years it was at 2,900 a decline of 34%. In US S&P500 was around 1550 in early 2000. It is around 1300, down 16% 12 years later."
I think,we should always keep in mind that even for the long term of 10-12 years, if timing is not good, markets can give negative returns. So timing is very important and for timing we should look for economic cycles, market technicals, earnings, valuations etc. While economic cycles, valuations, earnings are subjective we can take help of long term charts which are always objective and thus for long term investing also we should study market support and resistant levels and follow rules of trading like use of stop loss, not averaging in loss etc.
I would highly appreciate if you give your opinion on the above.
Your Fan
Jitender Yadav

Ashish Agarwal said...

Sir,
As far as nifty is concerned, there is a death cross lined up that may occur in next 3-4 days i.e. 50 Day SMA crossing below 200 Day SMA. So, one's trading plan needs to take that into account.