As an investor all of us need to be rational in our approach towards investment. The most important lesson that comes from the current rally is that long-term in the stock market can really be long

The Indian stock market is on an upswing. The popular index, “BSE Sensex” touched 20,000 once again on 15 January 2013. This is almost after two years that the index has crossed 20,000 and the way things stand now, the market may as well cross 21,206 that it had attained on 10 January 2008. There are many potential positive triggers that may drive market to higher levels in the days to come. Ongoing announcements of corporate results and the forthcoming RBI (Reserve Bank of India) policy may provide an upward push to the market. What is heartening to note is that apart from the Sensex, other indices and stocks in general have also shown northward movement. It seems we are on the verge of overcoming the lost half-decade in which started on 10 January 2008 when stock market had touched an all-time high. Since then the markets have offered nothing to a passive investor who would have followed the Sensex or Nifty. Whether markets will breach the all-time high, this rally comes has come out as a relief for investors.
 

Now that the market looks relatively immune to major downward movement, what should retail or small investors do now with this rally? This rally provides some opportunities as well as lessons for investors. As far as opportunities are concerned, this rally is a golden opportunity to get rid of the stocks in which investors may have been stuck for quite some time now. So if you had bought a stock which was hammered during adverse market conditions from 2008-2012 and does not have strong fundamentals, this rally is a golden opportunity to sell these such stocks.
 

Also by Vivek Sharma: Do stocks behave differently during the results season?
 

Additionally, if you had bought ULIP (Unit Linked Insurance Plans) and got stuck as the investment value had gone down, then check out if whether you have recovered the capital invested or got a small return. If either of the two has been achieved, then it is the right time to exit. There is no point in having any attachment with these investments as they hit the overall portfolio value. Even booking a loss in these stocks will make sense.
 

While the rally provides an opportunity, it also brings many lessons along with it. Never buy stocks unless you understand a business or the company running that business. So even if the rally continues in the stock market, don’t get overwhelmed by the mad rush which often dominates the stock market in such conditions. Do not buy stocks which are bought and sold on tips. It is important that lessons learnt during last four years of stock market volatility are not forgotten this time. Markets movements may be very lethal and corrections in market may result in huge losses. Hence, it is important that you never invest in stocks which lack strong fundamentals. Take advice of experts on this or take the mutual fund route. Otherwise be ready to burn your fingers even next time.
 

Investors need to remember that in spite of the recent surge in the stock market, it is not the right time to sell quality or blue-chip stocks that you own, unless you have a specific requirement for funds or you believe that your investment objective has been achieved. Continue your investments in such stocks. Even if the Sensex did not grow at all from 2008 to 2012, some of the quality stocks like ITC, HDFC Bank, HDFC, etc, continued to grow and added value to the investors’ portfolio. Some of stocks like Havells not forming part of Sensex have comprehensively beaten Sensex during the last five years, giving a clear cut message that the Sensex may not perform but specific stocks will.
 

There is no easy money in the stock market and as an investor all of us need to be rational in our approach towards investment. Stock picking is an art which very few experts posses and hence it is safe for investors to try their luck in stocks which have performed over a period of time. Also the most important lesson that comes from this rally that long-term in the stock market can really be long. So investments in stock market should always be done with a long-term horizon which indicates that it takes time for stocks to bring desired return.
 

Read more articles from Vivek Sharma, here.
 

(Vivek Sharma has worked for 17 years in the stock market, debt market and banking. He is a post graduate in Economics and MBA in Finance. He writes on personal finance and economics and is invited as an expert on personal finance shows.)