Stay Grounded

There are times when you must not buy the market. Under such circumstances, even indexing is not advised. But, that does not mean there are no opportunities in such a market. In any kind of market, there will be very selective opportunities to invest.

An investor must recognise when he needs to be selective. And, he must learn how to be selective. Most importantly, he must learn to say no to most ideas and just pick a few. Those few ideas will be what the market does not like or cannot even notice. Typically, they would either be out-of-favour industries or sectors, or they would be industries in their nascent stage of growth. Buying such ideas would help an investor to invest at reasonable valuations right now. This would help him generate better returns later when the business prospects of the company improve significantly and the market duly notices that change.

The art of selection is critical. You need to reject most ideas and yet select the right ideas. This is the toughest investing any investor must practice. But, during such situations, investors tend to generally be overconfident. Only when the markets are most challenging, do investors also start to think it is easy to find ideas. Their recent success lends to a tremendous rush of overconfidence in them.

The current market seems to be the perfect setting to easily feel overconfident. And, it could easily be the best time to make big mistakes. The challenge is to keep one’s head steady, keep looking for good opportunities and yet rejecting most ideas. If one does everything right, he could still pick winners even in this market.