Investing in the stock market is all about awareness (knowledge) and alertness in spotting opportunity.
This approach is all about the Big Picture. The Birds Eye View. Study the economy and decide which industry will do well. When the RBI reduces interest rates in the economy the housing sector, automobiles, cement and banks get a boost.
Expect stocks of cement, housing , infrastructure, automobiles and banks to do well in times of falling interest rates. When the RBI increases interest rates people tend to postpone the purchase of homes and cars and do not avail loans from banks. The stocks of banks, automobiles, housing and cement fall down during this period. These stocks rise and fall depending on the economy and are called cyclical stocks.
Remember : Cyclical stocks are risky and rise rapidly in a bull market and crash heavily in a bear market.
See Also: Stock Exchanges In India
Remember : “Be Fearful When Others Are Greedy and Greedy When Others Are Fearful”. – Warren Buffett.
You make a killing in the stock markets when you sell these stocks which you picked up at dirt cheap prices.
In times of plenty bad times are forgotten but remember even one day of misery can make you forget all the good times. When markets keep rising positive sentiment abounds. You feel that whatever you do you can never fail. This is the time to get control over your emotions.
Set a target :
After selling all your cyclical shares you are flush with cash. Cash is King. After a Euphoric bull market now is the time for the crash. This is the time (start of the fall of the bull market) or when bearish conditions set in you invest in a class of stocks called defensive stocks. Stocks of pharmaceutical Companies ,FMCG and lately even IT stocks are defensives. Buy blue chip defensive stocks (fundamentally strong) at the start of the fall in the bull market. You get defensive stocks cheap at this time.
How do you know the bull market is in decline?
This is a tough one to predict, but when Euphoria dies down (positive sentiment is down) in stocks and the economy begins to tighten well this is the time to get out of cyclical stocks and pick up defensives.
When the market crashes people rush to purchase defensive stocks. Everyone wants these stocks and their prices soar. This is the time to sell the defensives and make a killing. Now buy those cyclical stocks (banks , housing, automobiles and cement) as their prices are low.
Caution : These methods are generally followed .However you need to be cautious when investing in the stock markets as your investment is subject to market risk.
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