How to Prepare for a Market Correction? Investing during All time highs #Finance

This is the Nifty 50’s 1-year chart. In the past 1 year alone, the market has gone up by more than 30%. Now, let’s make a simple assumption. Let’s assume that our Portfolio also has a 30% Profit. If it crashes by 25% from that point,

… mention how the Profit in our Portfolio will be in the comments . Will it still be in Profit, break-even, or loss? Also, comment how much percentage should increase to get back to the old levels. Let’s see the answer to this question

in this CashNews.co. Before that, let’s see if the Stock Market is in an over-valued zone, if there is a chance for it to crash, and if there is a science behind it. Let’s detail it. One of the biggest investors in the world … Warren Buffett has recently started

selling his significant Apple holdings. Not only Apple, he is also selling the holdings that he invested in Bank of America. So, many people say that Warren Buffett is selling to get cash ready for a market crash. Keeping U.S market aside and … if we look at the Indian market, Nifty 50 has

given a 128% return in the last 5 years. Currently it’s in its all-time high levels. Not only Nifty 50, but even if we look at the small-cap or mid-cap index, they have given a significant run-up … and are trading at an all-time high. Not only this, particular segments and sectors in

the Indian market, … have given a very high run-up … and are in an over-valued zone. For example, if we look at the defence sector, they have given a very high run-up in the last 1 year. Defence funds have given almost 100% returns in one year. The interesting thing about this is

… the fund house itself has paused taking lumpsum Investments in the defence funds. Stating that it is at an over-valued level, they are indicating that they can’t invest the inflow coming after this. Even a few days ago, some small-cap stocks in India had stopped their

new Investments. At that point, they indicated that the small cap is at an over-valued bubble territory. Another thing to say is, FII (Foreign Institutional Investors) are continuously selling in India. The DIIs are continuously observing this. By DIIs, I rmean Mutual Fund

Companies. An important reason for this is … the SIP flow of retail investors is remaining very high. Since the awareness of SIP, … many people are continuously investing, and the Mutual Fund Companies are buying in the Indian Stock Market without any other option

… as the FIIs sell. Even in that, Mutual Fund Companies are dealing at an uncomfortable level. For example, many AMCs are sitting in cash. Without knowing where to invest their inflow, … they are holding a significant portion as a cash pile. All these are indications that some segments

and sectors in the Indian market are over-valued. An important indication for being over-valued or in a euphoric state … … is the IPO market. The most number of IPOs in the Indian market have happened in the recent 2 years. Previously, such numbers happened in 2007. In 2007, the market

was literally in a bubble territory. After that, a very significant crash happened. There was a huge crash of 50-60% in 2008. Even though the main board IPOs were increasing, … new SME IPOs were also increasing. Small companies use SME IPOs to get listed in the Stock Market.

To give an extreme example, there is a bike showroom in Delhi. The total number of employees is 8. They have applied to be listed through IPO. Their expectation is only a few crores. But that IPO got a subscription worth more than ₹4,000 crores. All such reports indicate that the market is in a

bubble … and is waiting for a correction or crash. In fact, the Indian government tried … to take many measures to prevent the bubble from forming in the market. One of those measures was … … to increase the Equity market taxation in the recent budget.

Usually, the expectation is that the market will fall if the Equity taxation is increased. Beyond that expectation, the market is still going up irresponsibly. In fact, to avoid Stock Market bubble and new investors, the government increased Equity

tax and reduced tax for traditional Investments like Gold, etc; Even after doing so, the Equity market is going up. So if it keeps going up irrationally, … there will be a crash or correction at some point. If that happens, let’s see how to be prepared

for it in detail in this CashNews.co. Greetings! my name is Boosan. You’re watching "Finance Boosan" channel. In this CashNews.co, let’s see 6 steps on how to prepare

for a crash or correction when the market is at its peak. The first step is to analyze our Portfolio. It is very important to spend 10-15 minutes and … … identify the bad stocks when the market is at its peak. Because only at that point, there are more chances of seeing

good Profits even in bad stocks. Even if a stock is at a loss, it will be in its minimum loss at that point. Because if the market goes up irrationally, almost all the stocks will go up. In case, we had invested in a bad stock or a particular theme or trend, a good option to exit

it is during the market peak. If we do this, even if there is a crash, we will be confident of regain that we have quality stocks. … and also our Portfolio will be clean. Particularly … it’s very important not to chase the trend when the market is at its peak. We

looked at the defence sector. Everyone is chasing the trend and buying at this point. Already, there is a run-up of more than 100%. Similarly, PSU stocks have already given a run-up. So, if we chase the trend at this point, there are more chances of getting caught at the market peak. For example,

take the Nifty Metal Index. If someone had bought at this point, there would have been NO significant returns for the next 3 years. If you look at it after 3 years, … there would have been only a 20% return, … which is not a very big return. Even if we wait from that point, there would

have been NO returns after the next 3-4 years. Means … If we buy a particular trend at its peak at the wrong time, there might be NO returns for 7-8 years. When we say chasing the trend, this is what is happening in mid-cap and small-cap. If you look at the Valuation of the

mid-cap index, 5 years ago, it was around ₹5600. Today, it is around ₹22,000. The Index alone has grown more than x3.5 times. 31% CAGR has come from mid-cap. According to SEBI’s regulation for mid-cap, … only 150 companies in India are classified as mid-cap. So, as retail investors

do more SIPs in the mid-cap funds, … it can only be bought in the same 150 companies. Even if it is already overvalued, since there is more inflow, … the Valuation of those companies will keep rising. Almost all of it will become bubble territory. If the market

considers at some point that the Valuation is not good … and falls due to some bad news, this mid-cap or small-cap will get hit very significantly. So, if we chase the trend … and buy things that are already overvalued at this point, … then we will be in trouble.

If we have already got good Profits in such bad funds or bad stocks, the good time to exit all that is the market high. When we do this, the second point is to identify the good valued picks. For example, in the Indian banking sector, and particularly in the private banks, …

the Valuation is very attractive. Here, the Nifty Bank Index has been compared with Nifty 50 in 5 years. Nifty Bank has underperformed compared to Nifty 50. Now, if we compare other sectors like Automobile, Metal or IT, … the banking sector has underperformed significantly.

Now, if we look at individual stocks, HDFC has been trading sideways for the past 3-4 years. Means, there has been no change in its stock price. It has been trading at the same level for the past 3 years. The same is true for Kotak Bank as well. IDFC has corrected up to 12% from its peak. Even if

there are no movements in the stock price, if we look at its Valuation matrix, the PE – chart, … it is trading at the lowest levels at this point. Similarly, if we look at the price-to-book (P-B) ratio, it’s in the lowest Valuation compared to the

trend at this point. Many private banks are trading now in an attractive Valuation. Also, the asset quality of these banks is also in the highest quality now. So, in such points, instead of chasing the overvalued trends, … we can invest in the undervalued ones where we can

get quality Investments. In fact, I share all the information about where I invest and the reasons why I invest … in the member community in real time. I also provide real-time updates related to #1a73e8; text-decoration: none;">Finance. If you are interested, you can join by clicking the join button on the channel page. You can also use the link in the description or in the comment section to join. Next in preparing for a market crash, … we need two important things. One

is cash reserve and the other is emergency fund. Cash reserve is for … When the market is down, we need cash to invest in that opportunity. It can be called Liquidity, cash reserve, or opportunity fund. Similarly, all Investments CAN’T be put in

Equity or the Stock Market. To tackle emergency situations, we need to save the required expenses for 3 to 6 months liquefied in the bank. For example, if someone had invested ₹1 lakh in COVID crash, he would have received more than 100% returns within a year.

Whatever money invested, it would have doubled. But many investors couldn’t invest at that point. The main reason for that is … they might not had ready cash. This is called opportunity fund or cash reserve. But if there is a big market dip or recession, investing in the market will

become secondary, and fear of losing Income due to lay-off will be primary. For that, an emergency fund is a must. The emergency fund should have the money required for managing 3-6 months expenses … kept as FD in bank. In fact, many banks are giving more Interest

Rates currently. To know which bank gives more Interest Rates, you can use the Stable Money app. In fact, many banks are giving more than 9% Interest Rates. We can book all these directly from the Stable Money app … and there is no need to visit the

bank. In fact, even if you don’t have a bank account, you can book FD directly from the Stable Money app. Usually, we can withdraw fixed deposits anytime. If we withdraw like that, there will be a 0.5% or 1% penalty in the interest rate. Means, there is no effect on our principle. If we have

a cash reserve or an emergency fund in the Savings account, … we will get only 2 – 2.5% interest rate. Whereas if kept in a FD, we will get more Interest Rates from 7% to 9%. For keeping a cash reserve or an emergency fund in a bank as a Fixed Deposit,

we will get Insurance for up to ₹5 lakhs in a bank. Even if the bank is bankrupt, we will get back the ₹5 lakhs as Insurance. If you don’t have an emergency fund or a cash reserve … FD is in its highest point currently. RBI will start decreasing its

interest rate in coming months. So, lock the FD now at its highest interest rate. In stable money, we can compare and choose highest Interest Rates among 200+ banks. Even if you book FD through stable money, it will still be directly booked in the bank. Your mail and communication

will all come from the bank. They are just an aggregator platform. Your money will be in the bank and not with stable money. I personally have 8% of my Net Worth as cash reserve. Whenever there is a dip in the market or a big crash or correction, you can use that cashless account

to invest. Next, the first thing that many people react to when the market falls is … thinking of selling at that point before the market falls further, and hurrying to sell their Investments. Many people still thinks that … they can sell now and buy after the market

hits bottom. Actually, according to the data, it is very difficult to time it like that. This shows the details of Market’s good return and worst return points for each year. It shows the best performing day and the worst performing day of each year. Many years, the gap between these two

dates is less than a week. Means, if we sell at a certain point thinking that the market is going to fall, the market will give more or equal returns within a week. Mostly, the market recovers faster than we think and goes up. So, it is a very bad decision to think of buying after the market falls.

To give you a real-time example, let’s pick a random stock. This stock fell by 7% in a week. Many investors would have thought that they can sell it at that point, … exiting after making Profits and enter again later. But after that, it has given more than 10% returns

in a single day. If they do the mistake by exiting, they will feel that they have missed out on these returns. If the market is going to crash, the only thing we need to do is to continue investing. In case if the market falls well, … we can invest more newly. So, the next important thing is

to invest more. When the market starts to fall, many people quickly invest a lumpsum amount. Like panic selling, this is panic buying. Thinking that the market might quickly raise after falling, we will buy more. After buying like that, the market might still fall from that point. Then, we will

think that we have hurried and bought , instead of waiting more. Then we will buy with the remaining amount at that point. Even after that, the market will continue to fall. At a certain point, we will miss the opportunity when the market is at the bottom. So, when the market or our favorite stock

falls, there is no need to buy or sell it in a hurry. We can continue to our SIPs as usual. We can also continue to do lump sum Investments as much as we can. We can use a particular technique here. Wait for the trend reversal. Means, when market is falling well, it’s better

to buy when it starts rising from that fall. If the market falls and rises again, it will be in a V-shape. So, both buying as it falls and buying as it raises are same. Because, the price level would be the same when we buy it as it raises. So, we can wait for the trend reversal and then take our

positions. Next, when the market is at the peak or when it crashes, it’s important to rebalance our Portfolio. Usually, every investor would have already planned where to put their Investments. For example, we can decide to invest 50% in safe instruments and

50% in the Stock Market, Half in safe instruments like Debt funds, Gold, Fixed Deposits, etc; and the remaining half in the Stock Market. The person with ₹1 crore worth Portfolio would decide to have… … ₹50 lakhs in

the safety and ₹50 lakhs in the Stock Market . If the Stock Market rises significantly, then this ₹50 lakhs would have become ₹80 lakhs. If the other ₹50 lakhs has just grown to ₹60 lakhs, then that affects our 50-50 allocation plan. Since the

Equity has given significant run-up, we need to rebalance our Portfolio to 50-50 by moving some of that to safety. When the market falls, our Equity allocation will decrease. At that point, we can move some from safety to Equity.

By doing this, we can maintain our Portfolio allocation properly. Because diversification is very important in Investments. By rebalancing and selling our Equity, we can also reduce our taxation. For a particular year, we don’t need to pay

any tax for ₹1.25 lakhs for long term Capital gains. When we rebalance by booking our losses or gains. we can get tax advantages many times. This is called Tax harvesting. Usually, this tax harvesting is done when the financial year ends in February or March. There is no

compulsion to do it like that. When the market is at its peak or when the market crashes, we can use it as a means to tax harvesting. So, overall, when the market is at its peak, it is very important to prepare for the crash. The first step is to check our Portfolio and trying to

clean it. If we have a bad stock or weak holdings, we can sell it at the market’s peak and move to quality holdings. Third, it is very important to maintain Liquidity in an overvalued market. When there is a sudden dip, we should have cash reserves to invest. Similarly, we

should have an emergency fund ready at all points. We can use fixed deposits for that. To know which bank provides high FD Interest Rates, you can use the Stable Money link in the description and in the comments. Next, there is no need to do panic selling when the market falls.

Similarly, we should not do panic buying. As usual, we can continue with regular investment and put some lumpsum in the dips. Lastly, when the market is at its peak or when it crashes, it is very important to rebalance our Portfolio. If you find the information in this CashNews.co

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