Dear Readers,
An uninformed investor always tries to time the markets and finds possible ways to hit the Bull’s eye by entering the market at the right time.
But is it really possible to Time the market and enter at the best time?
Well, we at Richvik present you an article on The Best Time to Enter Markets.
One unwritten rule which often works is “The Best time to buy is when the stock prices are falling sharply and you least feel like buying”.
SHOULD YOU TIME THE MARKET?
In theory, market timing makes perfect sense and seems like the right thing to do. However, in practice it just doesn’t work successfully for most investors. In trying to avoid regretting a wrong decision, Investor runs the risk of perpetually waiting for the ‘right’ time to invest.
Most often we come across this question of Right time since we are afraid of the unknown and thoughts like what if I Purchase today and Stock price slashes down, or the interest rates start soaring high or what if there is sudden change in the economy?
Well, there is one statistic that may assure you. The BSE Sensex in 1979 was 100, which is now soaring at 33,000 in 2017. This amounts to an annualized returns of 18% p.a.
During this period, most of what could possibly go wrong, did go wrong, both on the local and global front. Yet those who invested at that time and held on, have multiplied their wealth by over 330 times. They have also comprehensively beaten inflation. Those who tried to time the markets were often left frustrated and poorer.
PROBABILITY OF INCURRING A LOSS ON THE SENSEX:
The following table analyzes the period of investment on SENSEX and links it to the probability of incurring a loss while staying invested on the SENSEX:
| Summary since January 1990 | Time Period | ||||||
| 1 Year | 3 Year | 5 Year | 7 Year | 10 Year | 12 Year | 15 Year | |
| Yearly Rolling Return Observations | 27 | 25 | 233 | 21 | 18 | 16 | 13 |
| Negative Returns Observation | 8 | 4 | 3 | 1 | NIL | NIL | NIL |
| Loss Probability (%) | 29.63 | 16.00 | 13.04 | 4.76 | NIL | NIL | NIL |
| Median Return (%) | 17.43 | 9.59 | 10.08 | 10.93 | 13.53 | 12.71 | 13.4 |
| Average Return (%) | 19.19 | 14.66 | 12.89 | 12.2 | 12.6 | 12.79 | 12.97 |
| Max return (%) | 82.9 | 49.76 | 43.13 | 26.46 | 20.45 | 19.1 | 15.75 |
| Minimum Return (%) | -52.45 | -12.29 | -1.8 | -2.61 | 2.59 | 8.02 | 7.31 |
| Standard Deviation (%) | 33.94 | 17.46 | 12.46 | 8.01 | 5.39 | 3.35 | 2.37 |
It is clear from the above table that investing in the markets for a long term entails zero probability of incurring losses. Also, often, the risk of not being in the market is higher than the risk of being in it.
GROWTH OF A SIP INVESTED IN THE LONG TERM:
The chart below shows the growth of a SIP of Rs.10,000 made in 1990:
For those who worry about losses due to stock market fluctuations, from the above chart it is evident that the longer you stay invested, the lower the chances of losses and even if you had invested on days when the Sensex was at its highest value, you would not have lost money, had you held on.
The value of Investment made on the worst days reached Rs. 2,20,42,145.
And the value of Investment made on the best days reached Rs. 2,06,12,828.
PERFORMANCE OF ASSET CLASSES SINCE 2009:
It is seen from the above table that Gold, has shown the highest fluctuations and has been in the negative thrice since 2009. Compared to that, The SENSEX returns have been less volatile & has also given returns as high as 81%. Further, 2008 & 2011 are real scenarios that prove the ability of the SENSEX to rebound back in a year or two.
THE REAL WINNERS IN THE LONG TERM
Stock prices are often influenced by innumerable factors, many of whom are unrelated to a Company’s earnings. Often, these movements are random and difficult to forecast. However, over time, this apparent randomness fades away and we can observe a sustained uptick in stock prices in line with the underlying companies’ performance. There is no magic. Simply identify quality companies and stick with them. That is how long-term investors emerge as true winners, beating, both day – traders and their ever – present danger of inflation. For investors with a lower risk appetite, it is advised to opt for investment through balanced funds, which provide decent returns at lower risks in the long term. However, one should also not forget that asset allocation & diversification of your asset portfolio is the key to building wealth in the long term.
Statistics Source: Value Research & PPFAS