Market media advise: Try market timing!

Parroting ‘time spent in the market is better than timing the market’ is done by many journalists especially in the financial sector. However it does not giving the following advise:

“It is your money. So if you are nervous about the market move into cash”

When there are dark clouds, when you are feeling sad, when you are feeling depressed move into cash. This is absolute bull, unadulterated bull. Let us take the case of the Sensex. When the market went down from 21000 to 18000 would you be feeling depressed? I bet not. You thought this was only temporary. Market will come up in a while – that is what you think and all the Media experts told you the same thing, correct?

However in late 2008 or let us say when the index was 12000 you moved into cash. Surely at 8700 you felt good, did you not? It had the immediately gratifying effect did it not? (We are such short term minded creatures it beats me!!)
However due to Behavioral reasons (Confirmatory Bias) at 8700 you would have been sure that it would go to say 6000. So you would have sold more, or worse bought put options. (I know at least 2 guys who bailed out almost fully at 9k).

Yet, if you are an optimist you are betting against your normal nature and that irks you! The sense of having missed the chance to buy is so nagging that you do not know how to react to that feeling!

You keep asking: Is it time to get back in? Was yesterday’s 200-point rally in the Sensex (or worse in the Nifty!!) real or a fake? Is it the beginning of a new bull rally or is it a sucker’s rally? No one knows the answer for sure. And having spent enough time in the market, I still cannot make out the difference between skill and luck! I sold at the peak of the Harshad Bull rally, bought an office in South Mumbai. Luckily was sitting on some cash, when my broker (pre SEBI days sir!!) defaulted and I became a bankrupt!

Similarly have caught a few peaks in life, but not sure that I managed the cash sensibly at all. So even if it was skill (which I doubt, but there is a pattern to luck dammit!) the skill did not continue in re-entering. Even this peak got a few top calls – L&T, Tata power, Hdfc to name a few. Missed Kotak Bank, Cholamandalam DBS, etc. (sounds so stupid to get rid of the Aces but keep the…). However this time having exited at nice prices signed up for SIPs in mutual funds, so at least partially caught the index at 8700 also!

According to a recent study, a market-timer who missed the 10 best days of global stock markets’ returns over several decades would be 50% poorer than a buy-and-hold investor at the end of the period.

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3 Responses to “Market media advise: Try market timing!”

  1. Hi Subra
    I really follow your website from quite a few time
    Quite an eye opener I also posses this tendency sometimes
    Appreciate if you can present Fisher ” Common stocks & uncommon profits “- five Do’s & Dont in nutshell It will be really fascinating
    i have read this book but your insight will be much more usefull

  2. Ravinder Makhaik on July 14th, 2009 at 8:22 pm

    Sharing your experiences in the market, with the knowledge acquired so painfully, gives such a personal touch to these posts that they are a must read for novices like me.

  3. >According to a recent study, a market-timer who missed the 10 best days of global stock markets’ returns over several decades would be 50% poorer than a buy-and-hold investor at the end of the period.

    Is there any study on returns if you miss the 10 worst days of global stock markets! 🙂

    They don’t want you to know.

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