While a higher allocation to large and mid cap stocks is best suited to investors belonging to the middle age category and with a lower risk profile, higher allocation to mid and small cap stocks is best suited to investors belonging to the younger age category and with a high risk profile.

However, it is important to make sure that a single stock (whether large, mid or small cap) must not form a large chunk of a portfolio.

Generally, a stock should not form more than 5 to 6 per cent of one's portfolio. The portfolio, as a whole, should be well diversified.

Q6: Is it a good time to invest now or should one wait for the bottom?

Ans: No one and I repeat no one has ever been able to predict the top or the bottom of a stock market cycle. An analysis of the history of the stock markets has revealed that different bear markets have bottomed out at different times and there has emerged no definitive trend on the same.

Hence, an attempt to time the market or in other words, 'waiting for the markets to bottom out and then start investing' is not likely to prove successful.

Efforts should be made instead to look for stocks that are trading well below intrinsic values and then wait patiently for as long as as 3-5 years for the market price to converge with the intrinsic value of the stock.

Q7: Should I sell my stock holdings now?

Ans: If you believe that you hold stock of a company, which has the capability to deliver value in the long term, is down because the markets are down then the answer is don’t sell.

But if you think that you made a wrong choice in the first place and there is no point buying more of a troubled company at lower prices just to average your cost then you should sell.

Ultimately, the decision to 'sell' a stock should not be determined by the market sentiments but by the investor's assessment of the valuation of the stock.

Q8: All stocks are trading near their 52 week bottom, so which stocks should I buy?

Ans: The intrinsic value of any asset, be it stocks, bonds or real estate is nothing but the discounted value of cash flows that can be taken out of the asset from now until eternity. This method of valuation is popularly known as the DCF method.

Hence, the DCF analysis should be performed on stocks that the investor considers cheap and consider investing in those that give the maximum upside with respect to their market prices.

However, we would like to add that future cash flows are a function of factors like the company's balance sheet, its management and most importantly, its competitive advantage.

Hence, these factors need to be carefully evaluated while arriving at the future cash earnings of the company and thereby its intrinsic value

Q9: What about investing in commodities such as gold?

Ans: With the global meltdown the commodity prices are also heading south. In a global slowdown consumption is reduced and demand for commodities falls.

 Gold is a good hedge against rising inflation. However, unlike good quality stocks that pay dividends or bonds that pay out interest every year, returns from investment in gold can only accrue from the sale of the asset.

Thus, there is no income to fall back upon if the market for gold remains non-conducive for years at a stretch. Hence, exposure to gold in one's asset allocation should be limited and not more than 5 per cent of the total assets in our view.

Q10: Should I borrow and buy stocks since the stock market has corrected almost 60 percent?
Ans: A big No is my a