When we struggle to find new ideas, hurry to deploy capital, and worry where to invest our money, we know we are not in a good investment space. But, dealing with ourselves correctly in this phase of the market is very important for a solid reason.
We need to avoid making mistakes in such a phase, and that is not as easy as we imagine. When the markets are near highs, the tendency to book profits quickly is likely to be high. But once we book profits, we turn anxious to redeploy the money. Often, we book profits only so that we don’t miss out on buying new ideas. This hurried approach can easily lead to horrible investment mistakes. We end up selling better stocks only to buy lesser stocks. Capital goes hurtling down the quality curve and ends up hitting the valuation wall. Such accidents get set up in times like the present. Avoiding such settings are more critical for the safety of portfolios. We must resist the temptation to sell our better stocks simply because we need liquidity. And we must avoid buying new stocks based on hurriedly borrowed conviction. This is easier said than done. We need to sit out of all the market action to achieve this outcome.
This requires enormous conviction, patience, and will power. And you still need to look for ideas that fit your investment style, align with your valuation model, and provide the upside that your portfolio needs. Needless to say, downside protection should be the decisive factor in decision making on new ideas. The discerning investors needs to both sit out and participate in this market.
Knowing where to sit out and where to participate holds the key to future investment performance. That is never easy given the all round institutional tendency to deploy in a hurry and to deploy in bulk.