I have tried initially with the buy and hold concept. It never worked. I have so many examples where the price went to the highest and within one or two years it fell back. Classic example is ITC. I realised that buy and hold is never a good strategy. In fact if the stock is rightly identified, and you have capital, you should do “buy and accumulate”. Just buying and holding will never work. I had HUL with an average cost of 650. The price is now 2,600 (approx) but the number of shares was only 125. What is the use?
Once the stock is identified and when it peaks (according to me) will start selling in small quantities and when it falls (no hurry as to when it falls), will buy back the same. Will use the averaging both ways. The advantage is my average cost of the stock falls and once my average cost is at a level which I am comfortable, I will then start to accumulate keeping in mind my average cost… This ensure that my portfolio will be in green.
To do this, you need to have quantity, hence buying is as important.
The exception is with Nifty 50 ETF. This is only a buy and accumulate and I do not sell. When I first invested in this ETF, the AUM of SBI was around 98,000 crore (approx). Now when I checked it is 154,850. This means since I started, the AUM increased by approx 56,000 Cr. This again means, that there is a constant fund inflow to buy the underlying stocks. This is just one ETF, if all Nifty 50 ETFs are accumulated not sure, how much will be the AUM of all AMCs for nifty 50. Another factor which impresed me is Net Income as a percentage of AUM is 5.79% of this fundsfrom the dividends etc. Hence it is only buy and accumulate.
Discl: I could be totally wrong in the above, but this meets my overall strategy. I invest only surplus over and above FDs.
The reason this confounds me is this:
The way nifty 50 works is, as the price of an asset goes up, more share are bought (allocation increases). Non performing or assets that go down as sold (moved out of nifty 50). This is why it works much better than 90% of asset managers.
Now, selling when when prices are high and buying when they are low is pretty much the opposite of the nifty 50 philosophy (so to speak).
This only means that averaging shouldn’t really work.
Nifty is only a way of buying & selling shares depending on their performance. So if it works for nifty why wouldn’t it work for all the others buying and selling individual stocks?
What am I missing here?
(I understand that individuals can choose to sit out (have lower allocation & convert to cash)but this too should average out over larger time frames)
Not at all. Because my derivatives positions are based on the portfolio holdings. Some times I may have loss in Fno and gain in equity. And sometimes the other way round.
For example. I went long on HUL in futures at 2300 and kept selling calls of 2500 from April 2020. During Russia war in Feb 2021, it came down to 1950. I closed futures and bought it in cash. Selling 2500 calls continued. After it crossed 2500 I switched 2500call to sell futures. And sell 2500 put. (ITM options are not liquid in stock. Net effect of 2500call or short futures and short 2500put is same.) past 4 to 5 months am doing this. So in my equity portfolio HUL is showing profit of 2600-1950= 750 per share. But after 2500 I have booked loss in futures to the extend of 2600-2500=100. Yes. I have covered this loss already by selling calls and puts. I will be just rolling over month after month because the future premium is giving me more than risk free return. What I get out of selling puts against this future is bonus. I prefer booking loss in FNO to convert the gains to LTCG.
Today I rolled it over to Feb.
Why would you not use dark mode 