Media advise on Market timing….or how you can lose a lot of money

Myth: Time in the market is more important that timing the market.

This says that the longer you stay invested, the more chances of you making money. Again, only partly true. Good investors know that timing is all. While no one can call market peaks or troughs correctly all the time, we all can figure out whether the market is in a bearish phase or bullish. You must time the market by investing more in bearish phases and less at other times.

I found this piece of advice given by a very senior journalist in an economic daily.

This happened long back, and it was sad. I have no great respect for his understanding of the markets, but that is the worst part. He thinks he is right…and many others may think too.

It sounds correct, serious, in the pink papers and therefore appealing. And it is absolutely useless piece of advice! The fact that it is appealing is the worry. ‘Good investors know that timing is all’ is such an attractive statement, that everybody will fall for it. Now, unfortunately, the market does not announce that ‘from 22nd Feb, 2013 to 19 Dec, 2013 the market will remain bearish (or vice-versa)’. Also if you have invested at 21000 index, does it mean YOU HAVE To invest when the index is 9500 also?  Or that if you were smart (lucky) to invest when the index was 10,000 you should sell when it is at 20,000 (money has doubled, so sell?) Difficult questions to answer.

Most investors whom I meet invest when they have money, withdraw when they need money. My advise is simple “if you have money for the long term (say 10 years) invest in a good equity (or index) fund on a SIP basis”. If you have a short term view keep the money in a savings bank account, money market mutual fund, or floater fund.

To make money in the market, you need to learn about money, have a good portfolio, have a good portfolio manager, invest regularly and invest for a long period of time. If any one talks to you about market timing, tell them “I do not know anybody who knows anybody who has timed the market successfully – with a guarantee of history repeating itself”.

So God help. Amen.

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2 Responses to “Media advise on Market timing….or how you can lose a lot of money”

  1. for layman, i think , ‘time in the market’ is to be considered for whole investment , say diversified equity mf and debt instruments, and then broad , easy to understand and easy to follow thumb rules can be followed for’ time the market’:
    1.’if you have money for the long term (say 10 years) invest in a good equity (or index) fund on a SIP basis. If you have a short term view keep the money in a savings bank account, money market mutual fund, or floater fund.
    2.for equity portion,.never encash when market is low/crashed. you may switch to all or part of funds from diversified eq. mf at time market euphoria , sensed by sensex/sensex EPS above 25 to debt /liquid funds of same AMC to again enter when the sensex/sensex EPS dropped to 14 or so.( or based on other criteria)
    3.always try to keep expenses under control , and save more than the stipulated. the additional saving should be invested in debt instruments for recouping equity portfolio shortfall in equity portfolio in future due to market not performing , other goals not planned (mentioned), emergency fund etc.
    4. the diversified mfs should be monitor with peers and the indexes on yearly bases, but changes to be made only after due consideration, preferably in 2-3 yrs. time
    5. as any goal comes near 2-3 yrs, transfer suitable a/m to debt instrument for that goal.

  2. totally agree with subra
    people generally show patience in other so called investments like ppf,nsc and stay invested for long period of 15+ years,
    but they dont have same patience level for equity maily because they are full of fear and greed.
    they dont have guts to come out of bad investment and keep on crying , i remember how my close ones cried when i sold suzlon for a loss of around 12k but it happens you have to correct your mistakes and move on.lessons learned should not be repeated.
    for equity you need to learn and learn but for other investments like FD,RD etc you have nothing to learn just park your money.
    PPF dont allow them to withdraw before 6 year ,for mutual funds i have seen people withdrawing based on their past experience whenever the market peaks.

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