Why index levels don’t really matter

Given that the market could head lower in the short term, investors should build a portfolio that has potential to participate in a recovery, while reducing downside risk from short-term market swings. Here’s how.

The unimaginable has happened, with the BSE Sensex closing last week at a four-digit figure. So where is the next ‘support’ for the index? Will it stop at 9700? Or will it head further southwards to 8800? If you are a long-term investor, the answer is: It doesn’t really matter.

In the short term, with the liquidity picture shrouded in uncertainty, more pain may well be on the cards. But, for long-term investors, valuations are compelling enough to start accumulating blue-chip stocks. In the long run, as long you buy quality stocks, it isn’t going to matter much whether you bought them at a Sensex level of 10000 or 10-15 per cent lower.

Too much energy has already been expended over the past ten months, in second-guessing market direction over the next trading day or week. Whether you were trying to ‘short’ the market at every bounce or buying into it for ‘trading gains’ on falls; it is likely that you lost a packet to the market’s whimsical swings.

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