The Difficulty of Timing The Market
Equity market are
volatile and periods of high volatility are a part of the investing process.
When markets correct, as investors we can't control their fall or severity, but
what we can control is our response.
The temptation is to exit the market entirely or stop SIPs during correction and sit on the sidelines waiting for the 'right' time to re-enter and re-invest always tends to be a bad choice. We have experienced over so many years that the typical investor still believes that they can attempt to time the market, which off course is not a prudent investment strategy.
We all know that markets operate under various factors and as a result it is very difficult to successfully time the market on a consistent basis and the consequences of missing just a few of the best days (recently market witnessed a rally of 3000 pts in S&P BSE Sensex in 2 trading days) in the market can really put a dent in your long-term returns.
The aforesaid can be clearly analysed in the graph given below.
The temptation is to exit the market entirely or stop SIPs during correction and sit on the sidelines waiting for the 'right' time to re-enter and re-invest always tends to be a bad choice. We have experienced over so many years that the typical investor still believes that they can attempt to time the market, which off course is not a prudent investment strategy.
We all know that markets operate under various factors and as a result it is very difficult to successfully time the market on a consistent basis and the consequences of missing just a few of the best days (recently market witnessed a rally of 3000 pts in S&P BSE Sensex in 2 trading days) in the market can really put a dent in your long-term returns.
The aforesaid can be clearly analysed in the graph given below.
The
above chart clearly shows that if one had invested in stocks (as measured by
S&P BSE Sensex Index) from Jan 01, 1990 and stayed invested till September
23, 2019 the CAGR would have been 14% which means Rs. 10000 invested on January
01, 1990, would have compounded to Rs. 4,99,011 on September 23, 2019. The
returns drop drastically if you missed the 10,20,30 and 40 best days. A
prudent investor is one who always remains invested for the long term and
allows his money to compound.
"Time in the Market is Better Than Timing the Market"
- Warren Buffett
- Warren Buffett
Sources:
Various publications
Disclaimer: The
information provided herein is based on publicly available information and
other sources believed to be reliable, but involve uncertainties that could
cause actual events to differ materially from those expressed or implied in
such statements. The document is given for general and information purpose and
is neither an investment advice nor an offer to sell nor a solicitation. While
due care has been exercised while preparing this document, we do not warrant
the completeness or accuracy of the information. We will not accept any
liability arising from the use of this material. The recipient of this material
should rely on their investigations and take their own professional advice.
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