MIND YOUR STEP WHILE NEGOTIATING A BULL MARKET.

When the equity markets make front page news, especially the highs of the indices and the millions of gains in market cap, investors begin to take notice. However, new investors in equity, especially ones drawn in by the gains made by people around them, run the risk of making costly mistakes. Here are the mistakes you should avoid in a bull market. Do not be taken in by the new highs. Once the past peak of an index has been crossed, every new level is a new high and there is nothing extraordinary about it. These are journeys of an index which will go up as the market prices of stocks go up. They are not urgent reminders that tell you about lost opportunities. Do not treat them like immediate calls for action. Do not check the index everyday, and do not make generalisations based on the index. Explanations about why the market is up or down are equally useless. Discount them. How you will do is a function of what you are buying, holding and selling. Stay focused on that micro reality, not on the macro narratives floating around. Do not use the price as an indicator of how good a stock is. What you see as the rise in the price of the stock is in the past and is history. What will matter to you is how the stock will behave in the future. While it is not possible to predict the future with any degree of certainty, you need to have an investment thesis or a basic set of reasons why you bought a stock. Do not take chances with unknown stocks and over-hyped IPOs when there are enough with established track record to choose from.
Do not benchmark your returns with what you may have gained in the short-term by participating in the equity markets. It is a good feeling to see the value of investments go up. A bull market attracts investors as their confidence moves up when what they have invested in begins to do well, or exceed their expectation. Investors who see a 10% return as fantastic will begin to believe that a 40% return is to be normally expected. Do not be taken in by recent experiences of appreciation in the value of your investments. Learn to see these as the buffer for the inevitable correction that will come in the future. Do not quit in great haste. The desire to be right about timing the markets is very high among investors. Coming off from a flat market into a boom creates anxieties. Tentativeness about how far the markets will run up will increase as naysayers point to the end of the bull market with every rise. Remember that a bull market is not defined by its highs, but by its lows. No one knows how far your stock will run and you may regret quitting too soon. Allow your gains to run. What you have to be hawk-eyed about is the loss. 
Do not hesitate to throw out the bad apples. There is no way you will get each one of your stock picks right - even if you did the best research and analysis. There are too many unknowns and a stock you picked might end up doing worse than you expected. Your portfolio will do well if you focus on selling off what is losing money for you, rather than selling what is making money. Do not hope to recover your loss from the stock you wrongly picked. You can make it in another stock. By letting your losses to persist, you are allowing your capital to bleed. If you are unable to sell at a loss and move on, you may still not be ready for equity investing. Do not indulge in day trading if you have not mastered the art of managing your capital. Trading is very different from investing and calls for a different set of skills. Riding the momentum in a stock and booking some quick gains can make you mistakenly believe that it is all easy. It is just that you got lucky in a gamble, and you may not be able to replicate your gains. Trading is about moving the capital quickly across positions, evaluating them as you go along. If you merely buy and sell without that agility it is your broker who will make money. 
Do not hesitate to invest in a mutual fund if you are unprepared for direct equity investing. Stock picking and managing equity investments is a serious full-time profession and your money can do without your amateur antics. Buying equity funds enables you to participate in the bull market by using the services of managers who will select, monitor and manage stocks for you. The annual fee you pay the fund is so worth the benefits you will receive and it is just fine to focus on your own work and earnings, instead of trying to be an equity investor on the side. It is a smarter choice as investors who have used mutual funds over long periods will be able to testify.
-Challapalli Srinivas Chakravarthy-
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