What should be your Investment Strategy?

This is the ideal time when you should churn your portfolio and move out of stocks which have moved up too much too fast and move to some other stocks and funds. Let’s see what are the options first.

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Market had a dream run from March to November and though market is exhibiting lot of strength in small corrections I feel it’s also getting tired when it tries to cross the intermediate high.  Sensex and nifty are hitting resistance near its 17,000 and 5200 respectively. This is the ideal time when you should churn your portfolio and move out of stocks which have moved up too much too fast and move to some other stocks and funds.

Let’s discuss few of the options first.

1. Take partial profit and increase cash level

The best strategy when it comes to investing is to take profits out. Many investors prefer to take the profit out and increase the cash level in portfolio, so when there is a big correction they can buy good stocks at reasonably good price.

The disadvantage to this is of course you miss on the more upside. I have also seen people after taking the profit out are tempted to invest in the same stock at higher levels assuming they made a mistake by taking profit and then market punishes them.

2. Move to defensive sector

The next best strategy people follow is take partial profit from high Beta stocks and move to more defensive sectors like Pharmaceuticals and FMCG to protect on the profit in corrections.

3. Move to new Sector

Many investors prefer to move from one sector to other believing that the next upside will be lead by some other sector(s).  As an example you move out of banking sector and invest in real estate sector assuming banking sector lead the rally before and so the next upside will not be lead by banking but by sector which has not performed so well in the past rally like real estate.

4. Large caps to Midcaps

This is something where investors move from large cap stocks into mid-cap stocks. The main reason for such movement is valuation of large cap stocks is not comforting for more upside but there are so many more midcap stocks where you can find good values.

So what next for me?

Move out of all the large cap stocks like Reliance, DLF … where I have good profit and invest into funds like Sundaram BNP Paribas Select Midcap Fund and Birla Midcap Fund. You may be aware from my free e-book that they are my favourite midcap funds. I don’t feel like moving into mid-cap stocks currently but after sometime will move the profit and dividend from the funds into mid-cap stocks.

So what will be your trading strategy going forward? Share them in comments…