The impact of coronavirus has resulted in a stock market crash not just in India but across all the major stock markets in the world last week. So what are we supposed to do in the market buy or sell? Let us find out in our today’s blog.
The main reason behind this stock market crash is a coronavirus. If we analyze the data until today, what sort of returns has the market delivered during the disease and what sort of returns the market has the market given 6 months after the disease? So according to analysis, the stock market has given positive returns 6 months after the disease almost 70% to 75% of the time. Does that mean this market crash is an opportunity to buy shares?
The major impact of coronavirus is witnessed in China at the moment. If that is the case then why are the world markets crashing down? The reason for that is China owns a major portion of the world economy; it contributes 15% of GDP in the world economy as of now. In simple terms, out of the world’s total production, China contributes around 15% individually.
In the upcoming period, what strategy should we follow for trading as well as for long-term investing? Let us find out in a step-by-step manner. The world’s most successful investor Mr. Warren Buffet follows the Pyramid Technique while investing. We have already discussed the pyramid technique in our previous blogs. Do give it a look. If you wish to become a successful trader or investor in the share market then the first important step is to check the market valuation. So if the market valuation is expensive invest less whereas if the market valuation is not expensive then invest more. Also, make sure to form a pyramid of your investments. Till today if you see the history, the Nifty PE has always moved in the range of 10 and 30. Today even if the market has fallen still the Nifty PE is at the mark of 25. That states the market is currently expensive. So if you want to invest in the market now then invest less. After this, if the market picks up in 6 months then this market will further become more expensive. Whereas, in 6 months if the market falls down then the market valuation will become less expensive and then you can increase your investments there and also form a pyramid of your investments there.
The pyramid of your investment refers to the amount of money you are investing in the share market. When the market valuation is high, invest less and when the market valuation is low, invest more. Now, where should you invest? You can invest in either Nifty Bees or Junior Bees if you are unable to choose a specific share. Nifty Bees and Junior bees both are Exchange Traded Funds that you can easily buy and sell in the share market. And if want to specifically invest in companies for the long-term then for that we have already uploaded a blog on the same topic previously. Do check it out.
When the market valuation is expensive like when the Nifty PE is beyond 25 then should opt to invest less in cyclical companies. Cyclical companies refer to companies belonging to Auto, Metal, Oil, Bank, and Gas which are directly related to the economy because whenever the share market crashes then the shares of such companies witness a heavy fall.
The share market is basically made up of two types of companies Cyclical and Non-cyclical. We have already discussed the meaning of cyclical companies. Now let us understand non-cyclical companies. Fast Moving Consumer Good (FMCG) is an example of a Non-Cyclical company. Now let there be any situation outside, we are still going to get up and brush our teeth as well as oil our hair too. So be it hair oil, tooth-paste, or hair dye; we need not require to take a loan to buy these products. So if you invest in the companies who manufacture such products and who have a monopoly in their sector and also are cash-rich, by following a pyramid technique then as per the history, we’ll earn excellent returns here.
If the market is bearish and has fallen from a higher market valuation then we just learned how to form a pyramid of our long-term investments here. Now if you wish to earn by trading here then how to trade here? So if the market is bearish, then you can carry-out a short-sell trade or buy Put by placing stop-loss and trade in the shares that are in downtrend currently and earn profits here. But remember that we can go wrong anytime hence always follow stop-loss and money management technique here always. We have already uploaded a blog on this topic earlier. Do check it out as well.
If you want to become a successful investor then you can invest in Gold, Debentures, and Liquid Funds along with the Share market by way of following the market valuation while investing so as to earn great returns here. Now be it August 2019 or October 2019; when the market valuation was high, at that time as we had found an uptrend signal in Gold, we had advised investing in Gold and we ourselves had invested there and also earned a good return there.
Thus, if you wish to become a successful trader and investor in the share market or commodity market or currency market then download the Aryaamoney app today and subscribe to our Smart Investor training program, we have explained the above-mentioned technique along with examples and case studies in the program. Do check that as well.
Until next time…
Happy Trading, Happy Investing!!!
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