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Should you follow the BAAP (Buy at Any Price) strategy?

23 Feb 2022 0 COMMENT

Introduction

Investing in the stock markets can be highly rewarding if you make the right choices and time the market well. You can increase your wealth by multiple times by investing in the right stocks with appropriate strategies.

However, you also need to be aware of its risks. You can even lose a part of your capital if you don’t invest diligently. In hindsight, you must invest sensibly and carefully conduct a risk-reward analysis before proceeding.

Strategies for stock market investing

To generate profits from the stock markets, you need to buy and sell stocks to gain the advantage of market fluctuations. What you can do is either buy certain stocks at lower prices and sell them at higher prices later, known as a long position. Alternatively, you can first sell them at higher prices and then buy them when their prices fall, known as a short position.

As an investor, you can follow different strategies for stock market investing, depending upon the prevailing market conditions and your risk appetite. Today we are discussing one, not so common strategy, known as BAAP (Buy At Any Price)

Also Read: Top Investment Strategies for 2022

What is the BAAP strategy?

Buy at any price or BAAP strategy refers to identifying stocks with high growth potential and buying them at any price. The idea behind such a strategy is that the prices of certain high-value stocks are only expected to grow in the future and quality never comes cheap. So, many investors think that buying them even without considering the current market conditions and their current market prices can be a good idea.

The fundamentals of the BAAP strategy stem from the fear of missing out from the rally if you don’t buy at the current high price. (generally known as FOMO). The believer of this strategy believes that the prices of these stocks will not fall even if the overall market may see a southward trend.

Should you follow the BAAP strategy?

Following the BAAP strategy can be very beneficial during bullish markets. The Indian stock markets have seen a bullish trend since April 2020 and have given more than expected returns to investors. You can buy the stocks at any price and expect positive returns during such conditions.

For example, stocks like Tata Motors, Hindalco, and SBI have shown good growth in the past year, rising by around 50%, 80%, and 30%, respectively. An investor entering these stocks at any point in the last year would have made good profits.

However, choosing your stocks becomes very crucial here. Not every share performs equally well, even during bullish market conditions. Some stocks can perform very well in a short period to show an upward trend but can quickly degrade. In such situations, using the BAAP strategy can easily backfire, and you could incur significant losses.

What should you do?

As mentioned, it’s very crucial to identify the right stocks before using the BAAP strategy to buy them. You should also keep in mind current economic conditions and future projections.

Market analysts usually recommend the BAAP strategy only for some good stocks that are expected to grow at a fast rate. However, even a quality stock may end up delivering sub-par returns if you buy it at an exorbitant valuation. Most of the time, it has been seen that any stock that’s overvalued can’t be traded in the market at a high value for the long term. Therefore, as an investor, you should keep patience and stick to the fundamentals.

So, it’s better to combine growth and value investing and follow the Growth At a Reasonable Price (GARP) strategy rather than the BAAP strategy.

 

Conclusion

BAAP strategy can fetch you good returns during bullish markets. It also eliminates the need to time the market. However, identifying the right stocks is crucial for generating profits from this strategy. Quick trend reversals can even result in substantial losses. You can use the BAAP strategy to invest partially in quality stocks for the long term, if you have high risk appetite.

If you want to take a safer route, you can opt for the GARP strategy rather than the BAAP strategy.

Disclaimer – ICICI Securities Ltd. ( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400 025, India, Tel No : 022 - 6807 7100. The contents herein above shall not be considered as an invitation or persuasion to trade or invest.  I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. The contents herein above are solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments or any other product. Investments in securities market are subject to market risks, read all the related documents carefully before investing. The contents herein mentioned are solely for informational and educational purpose.