Moneycontrol PRO
Live: Stock Market Live: Bajar Gupshup | Dec 01, 2022

Sensex at record highs: Tempted to take profits off the table? Think again

Taking money off the table is a good idea. But not having a plan of what to do with this money later will harm you more

November 24, 2022 / 03:26 PM IST

On November 24, 2022, the benchmark index the BSE Sensex touched 62,297 points; its record high. There are many sitting on some handsome profits after the market rally that took wings from the March 2020 lows. More so, those who bought stocks during the lockdown period. And they are the ones worrying about the current market highs and thinking of booking profits.

Also read | Looking for long-term bets? Here's what these buy-and-hold philosophy-driven funds are buying

Take money off the table and, then, do what?

In fact, it reminds me of a famous dialogue from the movie Dabaang: “Thapad se dar nahi lagta saheb, pyar se lagta he (Not afraid of being slapped, but afraid of being loved).” Investors’ sentiments, these days, are somewhat similar; many say they aren’t afraid when markets fall, but develop cold feet when markets rise. And that is why they want to know if they should take money off the table and sit on cash, entirely.

Also read | Sensex at record highs: Should you stop your SIPs now?

The idea behind booking profits is to enter again when the market corrects and that is where you need to be careful. ‘Buy low and sell high,’ seems to be a perfect plan, but that holds true more in theory than in reality because timing the market is a futile exercise.

But, if you can time your exit and re-enter when the market corrects, I would encourage you to do that! But this is based on your assumption that the market will correct. What if it doesn’t? The market is driven with excess liquidity and a healthy correction is expected, especially if FIIs stop investing or pull out. You should not book profits if your investments are for achieving your long term financial goals.

Re-allocation of assets: a better alternative

The key is to stay invested; not just to withdraw blindly but to smartly re-allocate your assets.

Do you think that he made a mistake in selling early? I don’t agree with that, because he knew what he was doing and did clarify about the fact that he is 70 years of age and sold his stocks as a part of his asset allocation.

Also read: Wrong reasons to invest in a rising bull market

So, before you think of booking profits, ask yourself the following questions;  

-Why did you invest in the first place?

-Who are you? A saver, speculator or an investor?

-What will you do with that money?

I can understand that it's not an easy choice. In fact, the constant noise often prompts investors to make impulsive decisions rather than rational ones. My advice is to book profits or may be partially only if it is needed; otherwise I am personally very bullish on India, and believe that we are on the cusp of an economic growth explosion in the next few years. If it happens, you will create huge wealth. Booking profits without a plan or timing the market will kill that wealth creation process.

Do not take money off the table:

-just because stock prices went up, or,

-if your reason to invest in a stock in the first place still holds true, or,

-your portfolio is already diversified or rebalanced

Book profit only if:

-You need the money

-You have achieved your goal earlier than planned. For instance, you wanted to accumulate Rs 1 crore by, say, 2023 and you have already achieved your target.

In the end, remember that, getting out of the market is much easier than getting back.
Rishabh Parakh is a Chartered Accountant and a founder of NRP Capitals
first published: Jan 20, 2021 09:14 am