Questions for seasoned traders and investors

General
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A bit of background about me -

Relatively new investor - started in 2022 - and bought whatever I stock I heard about. Made some decent gains from long term holdings and mutual funds - but I sold off major of the holdings when markets started to go down last year, and since then I have parked money into debt funds - scared of losses i guess. This downward swing in the market was the first time I saw markets fall so much so I was scared of losses, and that made me realize that markets go down as well (I know it seems obvious historically, but you never learn unless you have been through a market fall). Majorly I had seen upward movement only so I was very scared and panicked a lot.

I did not end up “buying the dip” but “sold the dip” instead, and now I am seeing so many prices get back up to the ATH and even cross them. Also so many mutual funds have already reached their Sept-2024 highs and going up. So I have a few questions in mind for people who have seen lots of ups and downs in the market:

  • What strategy do you use for your investments - is it buy and hold/ sell after x% gains, etc?

  • How do you approach the market - do you ignore ups and downs and just keep buying - because in the long run markets will go up?

  • What do you do in downturns - sell quickly, wait and watch, buy more etc?

  • Do you have specific market goals? I have seen some people say - exit after x% gains, target x% annual ROI, buy for generational wealth to pass down, dividend paying holdings for recurring income? What goals, if any, do you keep in mind?

  • Do you buy mutual funds too - I saw so much upwards and downwards happen, and feel retail investors cannot beat the markets - so why not let the DII Mutual Fund AMCs let them work your money for you?

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For most people who don’t know what they are doing, this is what they should do and use time and mental energy saved on career instead.

Just buy/sip and hold diversified funds, make some allocation plan between different assets and maintain it. Don’t get too greedy or too fearful in bull and bear markets. Perhaps put some more in equity after large crashes but don’t go too overboard.

Don’t look at news and prices too much. Waste of time.

There is space for actively trading stuff but it requires expertise, experience, working through many failures, and one has to be ready to evolve if required. Its not easy. Markets can be very misleading and they might have evolved to make untrained human brain do stupid things.

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I am not seasoned trader nor investor. I only have 40% of liquid assets in equity, but here are my two cents.

What strategy do you use for your investments - is it buy and hold/ sell after x% gains, etc?

I use few paid websites to determine what is fair value, I buy when current price has 25% upside based on fair value estimates. I sell when current price is overvalued by 25%. The metrics I use to determine are PE, PB, Dividend yield (mean reversion). I never decide to sell just because price is up by 500% also do not sell when the stock price dropped by 67%.

How do you approach the market - do you ignore ups and downs and just keep buying - because in the long run markets will go up?

I have enough in debt funds to last 10-12 years, thats my base so I ignore where the market is, I can give equity enough time to recover (not every stock recovers). I am well diversified in equity like 198 stocks currently :). Its diworsification but thats something I made peace with. I believe being most populated country there is scope for growth so yes I believe businesses will continue to thrive and there are always bright minds who run companies. I believe some company in India is going to be in top 10 companies in the world.

What do you do in downturns - sell quickly, wait and watch, buy more etc?

I usually pace my investments like I invest .5% of my allocated equity capital every week based on opportunity. If the market is down I get to pick stocks at bargain. My buy rules and sell rules are set. If I do not have capital. I just look at valuations of my companies to sell if it fits my sell rule. If not wait and watch. I started selling options recently so expiry days are busy.

Do you have specific market goals? I have seen some people say - exit after x% gains, target x% annual ROI, buy for generational wealth to pass down, dividend paying holdings for recurring income? What goals, if any, do you keep in mind?

I have set entry and exit rules , no target % per year. I look at my equity portfolio and see if it beats inflation. I know the bar for my returns is too low, my current equity XIRR is 31% for last 5 years and overall portfolio is 12% since decade, I will not feel bad if it is 8%. I am sure at some point in future my returns will dip to single digit.
I really like dividend income though so I usually buy REITS, Utilities, GOV back good dividend payers. It doesn’t mean I will keep them forever. Example, I bought CYIENT just because it paid dividend for 25 years and there can be upside as per my entry rules.

Do you buy mutual funds too - I saw so much upwards and downwards happen, and feel retail investors cannot beat the markets - so why not let the DII Mutual Fund AMCs let them work your money for you?

I buy mutual funds too and I trade in stocks because I enjoy the idea that I have control over where to invest and when. I remember that even with covid first thing I did was logon to see how my stocks are performing. I look for markets to open with smile on my face every trading day (… Almost since I have to wake up at 5AM to go to office).

"the best financial plan has nothing to do with what the markets are doing, nothing to do with what your real estate agent is telling you, nothing to do with the hot stock your brother-in-law told you about. It has everything to do with what’s most important to you.”
― Carl Richards

Behavior Gap : Simple Ways to Stop Doing: Simple Ways to Stop Doing Dumb Things with Money by Carl richards. He writes in simple way.

“I AM A CONSISTENT WINNER BECAUSE: 1. I objectively identify my edges. 2. I predefine the risk of every trade. 3. I completely accept the risk or I am willing to let go of the trade. 4. I act on my edges without reservation or hesitation. 5. I pay myself as the market makes money available to me. 6. I continually monitor my susceptibility for making errors. 7. I understand the absolute necessity of these principles of consistent success and, therefore, I never violate them.”
― Mark Douglas, Trading in the Zone: Master the Market with Confidence, Discipline, and a Winning Attitude

Books are best place to start. When you are lost good book or interview by expert can change your view. Careful who you listen to, many fund mangers are worth listening to though.
I first bought wealth insight March 2014 where they featured interview my late Parag Parikh.
Stumbled on sanjoy bhattacharyya articles in Forbes back in 2013.
I suggest if you are looking for insights read as much as you can about everything trading/investing pick small part to test and you can built your style in few years.

PS: I just finished office today and pissed off I have to work on Sunday too. Not to mention my birthday next week where I have to work. The above advise is given in distress.

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4

Did you realize something? You are trading. This is different than investing.

Investing horizon is like 4 to 5 years or more and it is buy and hold though people improvise changing portfolio, rebalancing etc. But the concept is same. You need to be patient. Even if you buy real estate you need to wait. You need to accept volatility not sell during down turns.

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Hi @zoomtrader, sharing the following in good-faith.
Maybe you are already practicing some of what’s discussed,
If so, we can discuss that instead, and build upon it.

If you are not a fan of the Socratic method or find that triggering,
feel free to ignore the following…

TL;DR: Personal finance and Investing from first principles.

…and you might be feeling disappointed thinking you screwed-up.
Maybe so, maybe not. We’ll see.

Next month, when markets crash again, harder,
you will feel a sense of smug satisfaction, and feel smart.
Maybe so, maybe not. We’ll see.

The parable of the Chinese farmer comes to mind -

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This is classic market psychology.
One sells, the market rallies, and now one is kicking oneself.
Hindsight is 20/20, and the market’s job is to make one feel like an idiot one day and a genius the next. The aim is to NOT get caught in this mental-trap.

The bigger picture is that the current markets aren’t normal predictable markets.
(not that they are most of the times anyway :sweat_smile:, but are especially volatile right now)

Given all the major global cross-currents,

  • “Buying the dip” wasn’t a sure thing; it was a gamble on sentiment.
  • Selling wasn’t necessarily wrong; it was a defensive move in a tense environment.

IMHO, a potential challenge with the framing of questions in the original post above,
is that the direct answers to those questions won’t be particularly important in the overall scheme of things.

To borrow a couple of terms popular from RTS gaming circles,
those questions are focusing on the “Micro”,
whereas what is missing is the “Macro”.

  • Micro / Tactical activities in investment

    • Stock/Fund picking,
    • Market timing
    • Quickly reacting to news,
    • Technical analysis,
    • …

  • Macro / Strategic activities in investment

    • Setting financial goals
    • Determining Risk tolerance,
    • Asset allocation,
    • Monitoring Broad economic Indicators,
    • Rebalancing one’s portfolio,
    • …

All those questions in the original post,
can be truthfully answered by folks with varying degrees of -
“Yes. Do that too. A little bit. Diversify. #”
And they will be right.
Anything beyond that depends on one’s personal finances and goals.
# - FWIW, Looking at a recent post, you seem to be doing this already. So, that’s good. :+1:t4:

A alternate, more effective thought-process would be to build a strategy that’s so well-aligned with your personal finances and goals that you can stick with it throughout the inevitable chaos.

Why?
Was it because you could not afford to lose the amount that was invested in volatile equity? Did you need that amount in the near future for some goal / life-event?
…or some other reason(s)? What? :thinking:

Why? What’s your end-goal?

  • Most folks reply with “Generate a lot of wealth”

    • Which is not a sufficient level of detail. We need to go deeper.

  • Once we have clearly thought through and established a set of goals,
    then we can build upon it and derive the rest,
    including a suitable investment strategy for oneself,

    The advantage of such a strategy is that it will be something that
    one WILL be able to stick with, through ups-and-downs (in market and in life).

Here’s some recommended reading that helps on this front.
(in case haven’t come across them yet)

Note: Both of these resources are hours/days of reading/pondering over.
Can start slowly and tweak one’s investment strategy as one gets more clarity over time.

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I am not a seasoned investor or trader but sharing my opinions anyway.

What strategy do you use for your investments – is it buy and hold, sell after x% gains, etc.?

I found that I’m a poor seller based on past experience. After reading thoughts on selling by Pat Dorsey, Joel Greenblatt, and others, I realized a mechanical exit strategy suits my temperament better. Letting profits turn into LTCG (long-term capital gains) felt like a natural exit point. Once I enter a stock, I don’t exit unless I uncover governance issues. Over 95% of my sells happen only after a year—often exactly at the one-year mark.

How do you approach the market – do you ignore ups and downs and just keep buying, trusting that markets go up in the long run? What do you do in downturns—sell quickly, wait and watch, buy more, etc.?

Any indicator that attempts to tell whether the market is in a bull or bear phase is either late (missing a large part of the recovery) or frequently incorrect in choppy markets. So, holding through all phases tends to give better returns—if one can stomach the volatility.

Do you have specific market goals? For example: exit after x% gains, target x% annual ROI, buy for generational wealth, hold dividend-paying stocks for income, etc.?

My goal is simply wealth growth. It can be seen as building generational wealth.

Do you buy mutual funds too? I see a lot of ups and downs and feel retail investors can’t beat the market—so why not let DII mutual fund AMCs handle it for you?

Not currently.

I believe retail investors can make money through investing. There’s strong empirical and behavioral evidence supporting that. Strategies like the Magic Formula, deep value investing, trend following, and momentum tend to work in the long term—mainly due to persistent patterns in human behavior. The real challenge is having the emotional resilience to endure volatility.

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What strategy do you use for your investments - is it buy and hold/ sell after x% gains, etc?

Depends on your goal. At the end we need that money for some purposes. Its not that we need to invest forever. You will keep seeing ads MFs sahi hai but understand that entering into a fund or stock without knowing exit point / strategy is going to be stressful.

How do you approach the market - do you ignore ups and downs and just keep buying - because in the long run markets will go up?

Ignore but if you have strong conviction in the stock or MF, keep buying it following you strategies. Even in market ups or downs if your goal is reached, sell it and use it for your goal. You cannot be either greedy or be pessimistic here and you shall never regret of such decisions. Thinking that your stock went up by 5% after your sell will cause more impulsive decisions than anything positive.

What do you do in downturns - sell quickly, wait and watch, buy more etc?

Ignore it. Keep buying if you trust that fund.

Do you have specific market goals? I have seen some people say - exit after x% gains, target x% annual ROI, buy for generational wealth to pass down, dividend paying holdings for recurring income? What goals, if any, do you keep in mind?

same. You should have a goal on something you need that invested money for. If you invest without goal you will sell it. Keep a goal in mind and once it reached, use it for that goal.

Dividends are a joke if you do not invest significant amount. A long time ago i had the X stock for around 30 units - 20000 Rupees or so. They pay me dividends around 50 per year. I hope you understood the meaning here. Unless you buy heavily into this stock, your dividends are not going to add big to your income. Ignore the Dividend bullshit logic, if you cannot invest big in such stocks. Also dividend paying stocks are great in the US and not in the India. An example of such BS stock is Vedanta. I do not know why.

Do you buy mutual funds too - I saw so much upwards and downwards happen, and feel retail investors cannot beat the markets - so why not let the DII Mutual Fund AMCs let them work your money for you?

both stocks and mutual funds have strategies.
So long if you take the risk and that is personal for every single person. Both involve risk both involve figuring things. I see MFs are bit better or way better in some cases.

All in all, you need to trust what you are investing into. Without this conviction in place, you will sell it again. Buying maybe 5 mins job - click buy, pay and done. But the rest that comes after it is the hardest.

If you can control your mind not to do what you impulsively do, then you mostly win.

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My definition for “investment” is a combo of buy and hold for atleast 7 years (higher is better) along with regular review to course correct, if required. I’ve defined my long term goals and created a investment plan for this involving small cap and midcap Mutual funds (I don’t deal in direct stocks or any other MF category). I believe investment is to create long term wealth and not to generate regular income. For regular income I trade Nifty options. I’m a full time trader and MFD. I advocate the same approach for my clients too.

I use SIP route to invest in MF. 70% of the SIP amount is in equity funds, 30% in liquid funds. Whenever I make a profit in buying Nifty PE I transfer around 40% of the amount in liquid funds to equity funds. I call this PETA strategy.

If my goal is far away why should I worry about market downturns. Almost all downturns come after a very good up move. I also know that there will be a up move again, so no worries there. If the downside momentum is good, then my trading strategy would have bought PE and it would be in profit. I transfer some money from Liquid funds to equity funds. Here I use my PETA strategy (mentioned above)

I don’t have market goals but I do have personal goals which I want to achieve through my investments. Few of them are kids education and marriage, my financial freedom and generational wealth. I don’t exit at x% gain, etc. I only exit when my pre defined goal is achieved or to change to another fund. I want around 15% IRR (over years) but I’m comfortable with 12% IRR too. Less than that is a problem.

I’m strongly believe in Mutual funds (As mentioned earlier I’m a MFD). I believe retail investors can beat the market. You need specific skills for this which can be learnt over time, if you want to. I don’t have the patience to learn it (Full time trading drains me and I don’t have the bandwidth to learn stock investing) so I invest in Mutual Funds (small cap and midcap MF are my favourite). I believe there is lot more to be gained, in both monetary and personal happiness, by investing time to go deeper in chosen field of expertise and leave the market to the experts (Fund managers). I advise the same to my clients. Some like it, some don’t - individual choice.

I, strongly believe, that every person can grow wealthy. It needs a specific mindset which has to be developed. One can develop it by themselves or leave it to a good MFD (How to determine if a MFD is good is another topic). I believe that I’m on the right track and its only a matter of time (maybe few decades) when we will be very rich in time and money.

I use the same philosophy for my MF clients too.

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For investment specifically, I just buy and hold them, till it’s fundamentals doesn’t get disturbed.

Yes, I just buy them and ignore ups & downs.

In downturn I sell index to hedge everything in my portfolio. the cash flow which i got in hedging use it to accumulate more, or averaging out investments.

Yep, I currently target my investments for more than 35% annualised return. In which all type of investment came. whether fundamental or momentum.
I do trading regularly to generate cashflow.

Yeah, definitely. to pledge them for margin benefits or to pass them on generational wealth.

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