Monday, August 31, 2009

When to invest in the stock market

When it comes to stock markets the most common question is “Is this the right time to enter the market?” Those who sold when the markets were falling are worried that it might fall again. Those who purchased when the markets were falling are waiting for it to rise to a level to recover their losses. Both the set of investors are scared.

Any time is actually the right time. But instead on going by what their friends tell them, they should have purchased shares with strong fundamentals and their fear would have been less. I’m not saying fear would not be there, it would be less. Since shares with strong fundamentals will always perform.

Some people say the stock markets give an actual indication of how the economy is performing with a lag of 6 to 12 months. i.e. the markets started falling in January 2008, where as the news of recession came much later. Why is it so? Since there are analysts who track certain stock or sectors and keep advising their clients on which stocks and sectors to keep invested and which to come out of. Mind you these guys are stock or sector specific. Now as people start moving their money in and out of stocks or sectors, it gives a clear picture of the economy, which takes 6 to 12 months to collate and publish the data.

The markets have started to rise, so is this an indication that the economy is improving? No idea, it would depend on which stocks or sectors in the stock exchange index are actually going up. So you need to watch and invest. If you noticed in the last year, the persons who made money are those who purchased when the market was falling. So does that give you a strategy? Yes, buy whenever the market falls, sell when it rises. Easy to say, but if you follow this strategy you will always win. Especially in this uncertain market, for every fall in the index by 100 points, invest X amount. For every rise of 100 points exit X amount.

The stock exchange index for Bombay stock exchange is called the sensex and the index for National stock Exchange is called Nifty.

The Sensex is made up of 30 shares and Nifty is made up of 50 Shares. Almost all the shares on the Sensex are a part of the Nifty.

As mentioned earlier, invest based on stocks with strong fundamentals. One of the things to check is the amount of debt in relation to equity. A company with high debt will do well when the economy is good, but in bad times, this company will not do well.

The other is stick to index shares, these share have been made part of the index after a lot of study and research. This will lower your risk.

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