Hi, I started my financial journey last year and reached my first milestone of 10 lakhs
Parag Parikh Flexicap, SBI Multicap, ICICI Flexicap, HDFC Multicap, Kotak Multicap, Axis growth opportunities, Mirae Tax saver, Canara large and midcap - 1 lakh each - Totally 8 lakhs
(No SIP’s, mostly buy on dips, whenever nifty comes down 1000-1500 points from all time high)
Invesco Arbitrage Fund - 1 lakh
Navi bond - maturity on Nov 2023 9.5% returns- 1 lakh
Now going forward i am getting confusion,
whether to continue with these active funds or will go for index funds?
If I would be in your place, I will only keep two mutual funds, both index funds. 1 sensex index fund and 2nd Nasdaq100 for index fund. That’s enough.
And yes buy on dips is good way to invest but it’s called reversed averaging and it’s wrong approach in investing. Instead try averaging on upside. It will give higher capital allocation and growth in long term too…
In early part of my investing journey, me too thinking the same but with time my understanding is upgraded my thought process changed and I am sure, at some point in time you will also realise this that “buy on rise” is the secret of wealth creation and not buy on dips.
If buying on dips is wrong strategy, then buying when price is rising is also a wrong strategy. All depends on the stock which you are going to buy and how long you are willing to hold the same. If the stock which you are buying is fundamentally strong, the best strategy is to buy on dips.
The entire IT pack, no one wants to buy the same now. To me, this is the best time to accumulate. Banking stocks are at a all time high (few of them) and time to book some profits. Will not buy them now.
Example: Federal Bank went upto 140 and now at 129.
Few days back, HDFC went upto 2864. Those who followed the strategy of buying on the rise, was truly surprised the very next day it fell by 108 INR or so.
Same thing applies to Nifty 50 ETF, if you do not buy on dips when will you accumulate. Buying on the rise is great if you are a short time investor who wants to buy when the stock is rising and then dump it when it reaches your predetermined price level.
Notwithstanding the above, I do agree to your point of buying on the rise, if you are not aware of the stock or something really bad is happening. It happened to me, with Yes Bank, and was invested, when the stock price was falling, I was buying thinking of averaging. It did not work. I had something similar called 3i infotech same tragic story.
If you are looking at a target corpus, with a time period in mind, and if your funds have given a return which you think will continue to come in the future too, and if you will reach that corpus in the time you have, then you can continue with your funds.
If you are not looking at a corpus, don’t have a time period in mind, then you can take a chance by looking at the options you have.
As active funds are manged actively, they don’t fall the same as index funds, downside protection exists. So one reason given for choosing active funds is not for the more return than index funds, but for the lesser fall they have compared to index funds.
i do not invest in Mutual fund that much and ETF i still dont understand but its commendable you increased your capital. i invest in a stock thats showing good current rise with respect to market and overall when the market cycle is up. you can continue with 4 funds that have potential and invest the remaining at the start of a ralley.
Depends on your time horizon. If you are just a momentum investor then buy on rise works. But if you are planning to hold it for at least 10 years then buy on dips work.
Here the OP mentions that he is an a long term investor looking to create wealth. So in my opinion buy in dips suits him the best.
Again same answer, to make money one has to first invest, and in buy on dips approach - investor will keep waiting for dips to invest and most of the money will remained in side line (not invested) waiting for deployment in dips to invest. And hence buy on dips is wrong approach. The supportive fundamental investing rules for view is,
Don’t catch falling knife.
Now let’s tell talk about some fundamental rules supporting the view of buy on rise is legit, proper and most useful.
1st Trend is your friend.
2 Ride your Winners
3 Add on the strengths
And my friend there is no term like momentum investor, momentum trader exists but not momentum investors. There are just two categories of investors 1st value investors and 2nd growth investors and the way I suggested was growth investing approach ( in which paying few bucks more to catch the high speed growth train is all allowed).
Well. We both can have our views. What works for one need not work for the other.
I have bought heavily at 16800 in the last dip. Am sure as per your approach you have bought after breakout.
I will also tell you I have closed most of my longs yesterday at 18300 with the help of the ones who were buying on rise. It can go either ways but am happy with 1500 points. I will again wait for the dip to accumulate more.
If we all have same approach there will be only buyers or only sellers. We( buying on dips) give you the break out for the ones like you.( buy on rise.). At the end of the day we both make money.
Fully agree with the above theory. There is no one single way to make money. But it is wrong to say that buying on dips is wrong. Once the stock is identified, it alone gives you eneough opportunity to buy and sell. When someone says buy on dips, it is not suggesting wait for the next march 2020, it means, when the stock peaks, sell a portion and buy it back when it increases again. This is the only way an investor can average their average cost. Again, the fundamental factor is the quality of the stock which you have identified.
So many examples, SBI Nifty Next 50 is a classic one. It went upto 470, went down to below 390 (approx) and now at 423. If your have your conviction, you would have sold at 470 and bought the same quanitity back over a period when it was below 400. Now it is back at 423. My average cost of investment is lower than before.
There is momentum and there is mean reversion - both fundamental forces of market. We can trade/invest using both ways too - reduces risk in trading atleast.
For a long time, value investing ( probably not exactly what you are doing which is its own thing) was struggling, even big guys like ICICI head Naren said so. Then things changed in last year or two and now its doing well. So my holding in HDFC Equity started outperforming and Mirae funds ( growth) started under performing, whereas previously it was other way around.
Do both, and i think we should do better than one alone. If i ever get to investing again ( with TA ), i will try to do both.
Anyway, this is active way of working. Most people are better off with SIPs + buy dips on index. Momentum flies in face of logic for most and needs discipline. Not good way for most people.
May be I wasn’t very clear with my earlier response.
This is exactly what I wanted to say. You have to continue SIP irrespective of whether the market goes up or down. Along with it add more on dips and whatever extra you added sell that in rallies. Then you are back to whatever you were supposed to do otherwise. This generates the extra alpha required to outperform the benchmark.
We tend to see history as “linear”. But, our foot gets stuck in the present when trying to see the future.
When you look at historical chart it is very easy to say, sell at 470 and then again enter at 400. (Referring to your example above). You are seeing history as linear.
Let us do a simple simulation and just imagine.
You bought at 410 initially, price is at 430. What do you do?
Now Price is at 440.
You are happy that you did not sell.
But, what to do now?
Now Price is at 433.
You feel sad. you should have sold.
But, what to do now?
Why to sell now, i will sell when it goes again at 440 at least.
Now, Price is at 455.
Great. I made a good decision to hold.
But what now?
Price is at 470.
What will you do? How do you know from here the price is going to fall and you should sell?
Now repeat the whole process again while buying it back.
It will be a huge emotional roller coster and we tend to make more mistakes when we suffer from these emotions.
The best way to do is to be systematic and have a rule based approach that has a “positive expectancy”. Be it " buying the dip" or " buying the rise".
We have examples of successful people following both the methods.
My friend, I understand that every individual have his own school of thought… And the lessons I have learned is also outcome of experience.
Let me give u example,
The story is of around 2013-2014 markets were range bound. Nifty was around 5000-7000 and then suddenly market start moving up in 2014 and I was waiting for dip to deploy the cash and then markets keep moving up and now, when I look back I understand that mistake was huge. If I would have catch the train then I would be more wealthy as markets have gone 4x from there. In waiting for earning 150 points I missed the train of 15000 points in nifty.
So, When we talking about next 10-20 years then this 1000 points make no relevance, the thing that matters is, are you gonna catch the train and make 4x-10x gain or not. Waiting for 16800 is not good thing, the better way is to catch train right here right now and then seat comfortably.
Again, I am sure you must have hear the golden rule that the Best time to Invest was yesterday and next best time is Today.
So my friend never wait for few points, aim big and hit high. It’s always like " I will make it big…you keep the change".