May 2010 Market Correction – My Portfolio Breakup

An article by pgupta

Last week we saw the worst downfall of the stock market in the year. After the stock market broke the 11k record, everyone thought we were on the road to the promised land. However several of us forgot the basic principal of stock market investing: market correction after long bull run! When EURO started tumbling amid the Greece crisis, followed by Goldman Sachs lawsuit filed by SEC & BP’s oil spill in the gulf, it was perfect opportunity for panic to set in. Big investors started emptying their portfolio and converting into cash.

I lost close to 4% of my portfolio value on Wednesday. I realized the trend and I followed the suit. Picked my most volatile stocks and sold them immediately. That put me at 30% cash of total portfolio value. And then I waited for panic to settle. Thursday night market closed more than 3% down. That is when I decided to load up, leaving around 10% still in the account in case another bear run. As people were expecting, market bounced back on Friday and the green everywhere in the portfolio hurt my eyes for a change

Bottom line is that investors should be careful not to freak out and miss out the opportunities lying in the bear markets. Buffet is a big proponent of encouraging people to invest when 95% of the investors are pulling out. That is the perfect time to make quick buck This time around, I am glad I was able to exercise my learning over several bears recently.