Broad Strategy for Investing in stocks

Post retirement financial plan must be to have enough stable income from pension, rent,
and interest on fixed deposits. Investment in the stock market should not be with money
that you may need in an emergency. It should be with money that you can safely set aside
for the long term. A part of this investible amount should also be in cash/FD. What
proportion depends on the state of the market.
The Current PE of the Nifty50 index is 21.98. See https://nifty-pe-ratio.com/
The following numbers are for the SENSEX PE from the beginning.
Cum
Cum Max Cum Min Cum Avg
Median

19.7 35.13 10.27 20.1959

The variation for the minimum from the average is 96% and for the maximum, it is 74%. Such drastic
swings from the average or median are rare but can happen once in 10 years.

Making money on stocks is easy only if you have enough holding capacity, discipline and conviction
to survive a black swan event such as the market correcting by 74%.

It is a law of nature that everything regresses to the mean. This means that everything reverts to the
mean eventually. Your investment strategy must therefore be tailored accordingly.

The Current PE of Nifty50 is 21.98 which is marginally above the mean. Let us say you can spare Rs 10
lacs for investment in stocks, then keep 5 lacs in reserve and do not invest beyond 5 lacs in the
current situation. Choose good stocks with good performance and trading below their median PE for
investment. Book profits when stocks make big moves that take them beyond their median PE. Avoid
risky stocks. When the market corrects and the PE goes below 18, invest another Rs 1 lacs from your
reserve of Rs 5 lacs, and if it goes below PE of 15, invest another 2 lacs. If the PE goes below 12, sell
your property and invest in stocks for 100% gains in about a year’s time (I am joking but you get the
point).

The stock market can be extremely volatile and without a sound strategy and staying power, you can
lose a lot of money. The rich with discipline and a sound approach will always make a lot of money in
the market. Look at the following table that has destroyed many and made many leave the stock
market:

Nifty Nifty Period

Date 1 Date 2 Growth/decline
PE PE (months)
Jan-99 12.54 Feb-00 27.32 13.0 117.86%
Feb-00 27.32 May-00 20.24 3.0 -25.92%
May-00 20.24 Jun-00 23.72 1.0 17.19%
Jun-00 23.72 Aug-00 20.6 2.0 -13.15%
Aug-00 20.6 Sep-00 21.06 1.0 2.23%
Sep-00 21.06 Oct-00 17.9 1.0 -15.00%
Oct-00 17.9 Feb-01 21.07 4.0 17.71%
Feb-01 21.07 Sep-01 13.2 7.0 -37.35%
Sep-01 13.2 Mar-02 18.58 6.0 40.76%
 Mar-02 18.58 May-03 11.15 14.0 -39.99%
May-03 11.15 Jan-04 21.14 8.1 89.60%
Jan-04 21.14 Jun-04 12.14 5.0 -42.57%
Jun-04 12.14 Dec-04 16.54 6.0 36.24%
Dec-04 16.54 Jun-05 13.99 6.0 -15.42%
Jun-05 13.99 Apr-06 20.7 10.0 47.96%
Apr-06 20.7 Jun-06 16.64 2.0 -19.61%
Jun-06 16.64 Jan-07 21.37 7.0 28.43%
Jan-07 21.37 Mar-07 17.96 1.9 -15.96%
Mar-07 17.96 Jan-08 26.67 10.1 48.50%
Jan-08 26.67 Nov-08 12.29 10.0 -53.92%
Nov-08 12.29 Jan-11 22.63 26.0 84.13%
Jan-11 22.63 Dec-11 17.2 11.0 -23.99%
Dec-11 17.2 Feb-12 19.07 2.0 10.87%
Feb-12 19.07 May-12 16.89 3.0 -11.43%
May-12 16.89 Oct-12 19 5.0 12.49%
Oct-12 19 Aug-13 16.08 10.0 -15.37%
Aug-13 16.08 Aug-14 20.45 12.0 27.18%
Aug-14 20.45 Aug-15 23.38 12.0 14.33%
Aug-15 23.38 Aug-16 23.63 12.0 1.07%
Aug-16 23.63 Aug-17 25.45 12.0 7.70%
Aug-17 25.45 Aug-18 28.23 12.0 10.92%
Aug-18 28.23 Aug-19 27.15 12.0 -3.83%
Aug-19 27.15 Aug-20 31.64 12.0 16.54%
Aug-20 31.64 Aug-21 26.25 12.0 -17.04%
Aug-21 26.25 Aug-22 21 12.0 -20.00%
Aug-22 21 Aug-23 22.63 12.0 7.76%

What you see is that you could lose 26% in 3 months, 54% in 10 months and if you enough fund in
reserve to invest after every big correction, you can also make a lot of money in a short period.