10 Lessons learnt from stock market rallies

What should be your investment strategy during stock market rallies10 Lessons learnt from stock market rallies

I keep getting messages on blog and emails from investors saying they burnt their fingers in stock markets and lost their money. Several investors think that direct stock market investments is not their cup of tea. One of the investor messaged me saying he purchased Infosys stock and sold at loss. He says it is difficult to make money in stock market. Buying blue chip stocks does not mean you can make good profits. In my last 15 years of experience, I learnt several lessons in stock market especially during stock market rallies. I would summarize some of my experiences and lessons I learnt.

10 Lessons learnt from stock market rallies

Lesson # 1: Know when to enter and when to exit

Every one would think they are investing in winning stocks till the time they know that they burnt their fingers. Many of us invest in blue chip stocks, but still we end up with lower returns. Where are we making wrong? Last week I was talking to one of the reader Renganathan from Bahrain. He wanted to invest in 2 mutual funds. However both these mutual funds have invested in good stocks and all the stocks are common. Then it may not make difference to invest in two different mutual funds and can invest in one. The answer was mutual funds are experts to know when to “Enter” and when to “Exit”. This is where they make higher returns. During stock market rallies, all such winning stocks would reach their peak level. You should tap this and book profits. Re-enter when the stock price falls.

Also read: How is the performance of IPO's in last 6 months?

Lesson # 2: Never enter stock market during market rallies

During stock market rallies, the price of the stock rises as there is more demand than supply. The prices just shoot. The big mistake an investor does is entering at such rallies by paying high stock price.  The rally may not continue for long. This is where now the investor books losses. My suggestion is to adopt a “Sell” strategy rather than “buy” strategy.

Lesson # 3: Invest through SIP / Systematic regular plan

If you are not sure whether it is a stock market rally or not, invest through systematic equity plan where you invest in equal quantity per month for 1 to 5 years period. e.g. If you like TCS stock and want to invest up to Rs 10,000, start buying a quantity of 5 every month. All such stock market rallies / market downfalls would be taken care if you invest systematically.

Lesson # 4 – Do remember that past performance may or may not repeat in future

Several years back, I brought Infosys stock at Rs 3,000 when markets were at peak. My assumption was it is giving more than 15% annualized returns for several years. During recession where IT stocks fallen heavily, the stock price reduced to more than 30%. Since I made one time investment that too in all IT stocks, my stock portfolio got skewed. Don’t think that past performance would repeat in future. Even good stocks would underperform in such market conditions.

Lesson # 5 – Excellent opportunities after stock rally

What I am saying is instead of buying at rallies, do wait for some more time. All such rallies end up in few weeks or months and you would get excellent opportunities when markets move in negative direction. Investors would love to invest in stock market rallies and love to book losses during downfall. The strategy should be exactly opposite to gain in stock market rallies.

Lesson # 6 – Diversify portfolio

When you invest systematically still there could be space that your portfolio can get skewed if you invest only in fewer stocks or sectors. Select top stocks from various sectors and start investing. During such stock market rallies, one sector may perform extremely well and you can “en-cash” to sell and come out of it.

Lesson # 7 – Stay away from brokers recommendations

This is the time where several brokers make money. During stock market rallies, majority of stock prices goes up irrespective of its performance. Stock brokers add such rallies to their performance and try to influence investors to subscribe to their recommendations. Just observe that you would not see any stock broker who recommends during stock market falls. All of them would vanish.

Lesson # 8 – Invest in liquid investment options during rallies

This is powerful lesson which I learnt. When the stock market rallies, you cannot enter to invest for long term. Invest in liquid investment options during such time so that you can en-cash every opportunity of market downfall to enter at lower level by liquidating such investment options.

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Lesson # 9 – Look for alternative equity investment options

If you think that stock market game does not suit you as you need to track regularly, invest in equity mutual funds where mutual fund experts would help you doing such tracking. Investing in equity mutual funds during such stock market rallies would have lesser impact on your portfolio during stock market crash.

Lesson # 10 – Never invest in stock market to lose money

This is simple to say, but hard to implement. If you think you are entering stock market during rallies to make money, be ready to lose money. But if you consider taking all these tips, there are greater chances that you would reduce losses.

Readers, what are your experiences in stock market rallies. Have you en-cashed any opportunities after rallies? If so how?

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10 Lessons learnt from stock market rallies


  • TS Prabhakar


    Your articles are of immense use to beginners in investing.Kudos to you for the good work! I just entered the stock market to test waters.I am 53.Thought let me learn so that when I retire few years later,can do trading.I am in Hyderabad.Can you suggest any firm which gives good training on stock trading basics.I am into equity -cash segment only.Regards–TS Prabhakar

    • Hi Prabhakar, There are several institutions. You can get online training as it is flexible. If you already have any demat account, you can login and check for basics which are being provided to demat account holders without additional costs.

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