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Tuesday, January 12, 2010

Have you taken some profits home?

Two weeks back I had suggested that investors should take some profits off the table in this post. The BSE Sensex moved up to make a new high of 17790 on Jan 6 '10 - very close to the target of 17800 mentioned in a post on gap-analysis back in Sept '09.

The expected long-term resistance from the 17500-18000 zone kicked in, and the Sensex started to drift down and closed today at 17422 - almost the same level at which it had closed two weeks back. If you haven't booked some partial profits already, this may be a good opportunity to do so.

The Q3 results season is upon us, shouldn't one wait to check out the results before booking profits? Yes, if you are stock specific - and you should be. Volatility in the Sensex doesn't affect all stocks equally. One should concentrate on the stocks in one's own portfolio.

But don't forget that stock markets generally 'discount' good or bad news months in advance. If you own stocks that make up the Sensex (or Nifty) index, and if such stocks have risen a lot already and are now showing signs of hesitation - then they may fall if the results are perceived to be less than great. Only positive earnings surprises can cause them to rise more.

What if you have booked some profits already? Don't get anxious because the Sensex isn't correcting. Also, curtail your impulse to jump in if the market starts to move up. That is the challenge in the stock markets. To keep your cool, and be patient - like the South African python mentioned in Chapter 4 of my FREE eBook. (If you haven't got a copy of the FREE eBook yet, get it now by sending me an email request.)

If you would rather not time the market (it is a difficult task for most investors), park your profits in a liquid fund and make monthly withdrawals from it to invest in an index fund or Nifty BeES.

What you should definitely avoid is to sell out completely and sit on cash. That is investing suicide in the midst of a bull market.

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