Cash in hand
Currently, stock markets are in a bull phase and new people are entering stock markets daily. However, I am a regular profit Booker in these markets. I am investing in cash, not trying to time the market tops and bottoms. I have my own way of trading as everyone has his unique trading method. My cash in hand position rise when markets are above Nifty PE 24 levels and I keep buying stocks when Nifty PE is below 19. This way I get value stocks at a bargain.
When you are in a bear market the old saying is, “He who loses the least is a winner”. No, you can’t live on that small a return, but you can lose large sums by trying to be invested at all times. There have been many years in the past where cash in hand with no percent return beat the heck out of the stock market.
Go back to 2000 and remember the NASDAQ lost 78% of its value in 3 years. Since March 2000 investors in the 50 hottest-selling mutual funds have lost an average of 42% according to the Lipper Analyst. Fidelity Magellan, the largest fund at that time remains a loser of 23% and Janus, 4th largest, is down 45%. The Buy N Holders have still not recovered their investments.
Why buy and hold is not a good strategy when the market is overbought because when markets go down. It does not care about fundamentals of a particular stock. Horses and donkeys are treated the same way.
If you had sold out near (I did not say at) the top, say within about 10 or 15% your account would have been pretty darn healthy when it finally did start back up. You would not have lost 30 to 40% or more of your hard-earned money. That is what I refer to as a “reverse profit”.
If you had put a loss limit on your portfolio of 10% on each position and taken out just enough to live on it probably would that have been less than letting it stay invested in the market? You can easily check that.
Putting 100% of your money in a money market while the market is declining does not mean you are not invested. You are invested – in cash. This protects your savings from huge losses that can and do occur regularly in market cycles.
The smartest investors set a limit from where they bought from the highest price their equity has reached as to where they will sell if it starts going down. Usually, 10% is the rule of thumb, but it can be 5% or 20%. That is your choice.
All investors must learn that cash in hand is a position or they are sure to lose their money.
Again, This is not an advice, This is my personal way of trading and you need to research yours.