What To Do When The Bulls Are On A Rampage?

Strap: A bull market is a time when many investors throw caution to the wind and do things that can cause grievous harm to their portfolio. Here are a few tips that will help avoid the pitfalls of a rising market

- Sudipta Mittu

At the time of writing this story, the Sensex is trading at 30,322 and has given a year-to-date return of 13.88 per cent. These days newspaper headlines are full of news of the Sensex and the Nifty touching new highs. There is a lot of euphoria and optimism. Many experts are voicing the opinion that given the opportunities in the Indian markets, the abnormally high valuations at which many stocks are trading (many stocks are today trading at price-to-earnings ratio of more than 60) are justifiable. It is precisely in this kind of environment that investors stand the risk of making big mistakes which could do irreparable damage to their portfolios. Here are a few tips that will help you stay sane and on course for achieving your long-term financial goals.

Maintain a diversified portfolio: One common mistake that investors make during a bull run in equities is to move a large portion of their assets into equities, the idea being to maximise their gains. Experts, on the other hand, suggest that you should take the opposite route. The trick is to remember your asset allocation and stay true to it. Thus, if on the basis of your risk appetite and investment horizon, your investment adviser had suggested a 60:20:10 allocation to equities, debt and gold, stick to it in all market conditions. This holds especially true for a bull market, when the temptation to bet all your money on this single asset class is great.