How To Make Money When Stock Markets Are Falling?

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In the last 1 year, investors have lost heavily in the stock markets. Each time they lose money, it takes years for them to recover that money and probably even more years before they return to the markets.

In fact, it will be hard to see ICICI Bank hit a 52-week high that it hit last year of Rs 360 anytime soon. Or for Tata Motors to go back to the Rs 600 levels last year and even more difficult to see SBI hit that Rs 320 mark, that it hit last year.

How To Make Money When Stock Markets Are Falling?
Once they are battered it takes years for stocks to make any significant recovery. So, how would you end-up making money in a falling stock market?

It would once again be through systematically increasing your buying when markets are falling. Let's give an example. Say you have Rs 3 lakhs to invest. Say you begin investing when the markets hit 29,000 points, you probably realize that the Sensex p/e multiples have reached 23-24 times and avoid buying. Let say if the Sensex falls to 28,000 points and you feel a 1000 points fall is good. Since you can't time the market, you go ahead and buy shares worth Rs 5,000. When it fall to Rs 27,000 you buy shares worth Rs 10,000. When it drops to Rs 26,000 you buy 20,000.

Similarly at 25,000 you deploy Rs 40,000 and at 24,000 Rs 80,000 and at 23,000 points. Now, you keep doubling the amounts each time the markets fall. At 22,000 points you invest the maximum sum of Rs 1,60,000.

What you have done is that you have effectively increased the buying each time the market has fallen. What this means that if 6 months down the line the markets are back at 27000-28000 points, you would have made a jolly good sum. This is because, you would have made significant purchases at the index around 22,000 points , 23,000 points and 24,000 points.

Here's How You Do It
IndexAmount Invested
28,000 pointsRs 5,000
27,000 pointsRs 10,000
26,000 pointsRs 20,000
25,000 pointsRs 40,000
24,000 pointsRs 80,000
23,000 pointsRs 1,60,000
22,000 pointsRemaining 85,000

This requires discipline in the approach. You should also hold onto the stocks till the index reaches a decent level and only than sell. Similarly, for buying.

Read more about: icici bank, state bank
Story first published: Thursday, March 10, 2016, 10:16 [IST]
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