Whenever the market corrects sharply, one question that immediately comes to mind is: should I average my cost by buying some more at lower levels? And this holds true for even some of the seasoned market players. After all, market runs on two dominant emotions: greed and fear.
There is no one easy answer to this question. Equity as an asset class may perform well over the longer term, but this does not mean that all stocks will come out shining.
Quite a few high flying names have taken a beating over the last couple of months, and the temptation to add to your holdings is understandable.
But you need to keep a few points in mind before you double down on that stock.
Is the broad thesis of investment intact?
Has the stock fallen only because there is a general risk-off sentiment. In such an event, it makes sense to buy more.
What does the anecdotal evidence suggest? Some stocks like Bajaj Finance correct 20-40 percent like clockwork every year and then they make newer highs. Some stocks have personalities and they tend to act in same way
The 200 DMA test: Again, many stocks correct to 200 DMA in a bull market correction but bounce back significantly if they defend it or don’t trade below that level for a long period.
If you are in a bear market: Treat this as a golden opportunity to load up on your favourite stocks. As the adage goes, buy your regrets in a bear market and sell your mistakes in bull markets. Remember, it is only in a bear market that you get to buy stocks at your desired prices, or somewhere close to it. But remember, don’t try to time the bottom.
Historical trends: There are certain stocks like HDFC where the best buying opportunity arises when it trades below its own median valuation. That can be an opportunity.
Check out our in-depth Market Coverage, Business News & get real-time Stock Market Updates on CNBC-TV18. Also, Watch our channels CNBC-TV18, CNBC Awaaz and CNBC Bajar Live on-the-go!
Mark Mobius reveals how markets will react if NDA wins 400+ Lok Sabha seats
May 15, 2024 8:09 PM
Wine shops and bars to remain shut for 4 days in Mumbai in 4 weeks, check details
May 15, 2024 7:52 PM
INDIA bloc will win majority seats in Bihar, says Tejashwi Yadav
May 15, 2024 4:20 PM