Don’t Just Buy Right — Know When to Say Goodbye
Most investors spend a great deal of time researching which fund to invest in, but very few give equal importance to the exit strategy. In reality, exiting a fund is as important as choosing one, because markets are dynamic, ever-changing, and unpredictable.
Over time, market cycles change — one year equity may outperform, another year gold shines, or perhaps debt offers stability. Similarly, within equities, sectoral trends keep rotating — pharma may lead one year, IT the next, and small caps may outperform only to become overvalued later.
Thus, an investor’s portfolio needs regular monitoring and timely exits to book profits, avoid risks, and reallocate to better opportunities.
Real Example: The COVID-19 Rally
During the COVID-19 pandemic, IT and Pharma stocks delivered exceptional returns as the world went digital and healthcare demand surged. Investors who entered early saw their portfolios multiply.
👉 But here’s the catch: Post-2021, both IT and Pharma sectors became overvalued. Growth slowed, valuations stretched, and eventually, these sectors corrected.
Small Caps (2017–2018): Post strong 2017 rally, many investors held on — then saw a 25–40% drawdown in 2018
- Investors without an exit plan held on too long, watching profits shrink.
- Investors with a timely exit strategy booked gains and reallocated to other opportunities (such as banking, capital goods, or emerging midcaps), thereby protecting their profits and staying ahead of the curve.
Key Lessons
- Sector Leadership Changes – Winners rotate; no sector leads forever.
- Overvaluation Risk – Even the best-performing sectors become overheated.
- Profit Booking Protects Gains – Booking profits at the right time locks in success.
Reallocation Matters – Exiting overvalued areas allows entry into undervalued ones.