Many investors are extremely cautious during periods of market consolidation. In fact, some are even used to doing nothing during those periods because they are unsure of the trend ahead and thus, not doing anything about it might be the best move. Evidently, during market consolidation, the markets are also less volatile on most days and trade volumes are also lower on most days. However, I am not convinced that we should not adamantly do anything during those periods, instead, we should continue to look through out portfolios and mind the “fields.” I used the word “fields” because I wanted to emphasise that investing is something like working at a plantation, there are days where we pow and sow, wait and then of course, harvest, but do farmers do nothing when the crops are growing? In today’s post, I will use some logical example to share how I deal with periods of consolidation in the market and how it has helped me as well.
The weather might sometimes change unexpectedly
As we all know, investor invests on the basis that a certain company or industry will be doing relatively better in the future as compared to their current performance. Yet, we also know that we cannot rely on our expectations to make the best “bet” because we cannot count on any predictions completely. Therefore it will be wise to use time given during market consolidation to adjust our target prices and adjust our stock counters’ weightage in the larger scheme of things. So far, I have always tried to be frank with myself and accept that since there is a shift in the sentiments of the market, therefore I must also adjust my expectations accordingly and start aiming for different entry or exit prices.
Weeding the problems in our portfolios
During market consolidations, we should start taking a closer look at our portfolio and review our holdings during those periods. In general, we would have made less than ideal entries along the way and this is probably the best time to look at which counters we can shave off to take profit for reallocation. This will not only help increase your potential upsides but also in some cases provide opportunities to optimise your portfolio as well. Investors who do not take action often miss the opportunity to take profit and average down on their weakened counters which become a double whammy when the market finish consolidating. I would like to add that even though we are not able to predict the future, we should always try our best to do the thing that makes the most sense.
The question not to ask during market consolidation
Closing Thoughts
Investing during a long term consolidation is not easy because we are often afraid that if we bought or sold at that point, we will either miss out on greater profits if the market heads north otherwise buying at a price is not the lowest possible. My response to that is to stay humble and expect sub optimal results and never buying or selling huge tranches, instead, buy and sell smaller amounts according to how much cash you have or how much stocks you are holding to.
