Sir John Templeton, the investing pioneer had famously said, ‘This time it’s different’ statement is very dangerous. It is very apt for investors—if you often hear, “This time it’s different,” you should start getting worried. With the infamous habit of markets being volatile almost every time, we have seen that major retail investors are hit hard almost endlessly. It happens either because they try to time the market or because they feel like they can miraculously find the right stock at the right time, which almost 90% of the time they fail to do so.
Even one of the game’s legends, Benjamin Graham, mockingly stated in his book, “The Intelligent Investor, that timing the market is actually close to rocket science. Still, there are some incidents when investors end up losing almost all of their capital just because they thought they could actually time the market. There is unnecessarily so much collectively wasted time and energy on market forecasting, that it forces us to ask a very important question as a fundamental investor: “Should you even spend an ounce of energy thinking/worrying about the right time to invest?”
Investors still believe there’s a secret formula out there that will allow you to “break the code” if you properly balance technical and fundamental analysis? The stock market is made up of numbers, yet it does not move simply on those figures. At least, not fully.The stock market is built on the actions of human investors. Human investors who are emotional, greedy, or afraid and respond to the news of the day by sending the market soaring or plummeting downhill. Apply all the algorithms, logic, and arithmetic you want, but market fluctuations will always be unpredictable and illogical due to the human aspect.
Stock market volatility is not reduced by any automated trading systems. They worsen it by initiating institutional buying or sells based on upward or negative momentum.
As per the statistics, if you’d invested at the lowest points in the last 4 decades every year in the Sensex, your compounded return would have computed to around 14.72% annually. And, at the same time, if you’d invested at the highest points in the last 4 decades every year, your compounded return would have computed to around 13.73% annually. Is that such a big difference for you to worry about and lose sleep at night? I say, “no,” because the difference is merely 0.99% annually.
It’s no longer realistic to be lucky, or even unfortunate, for the entire 40 years. It’s impossible for you to have invested at the top of the game every year for 40 years. At the same time, investing at the lowest level every year for 40 years is also impossible. No one has ever been or will ever be so lucky in the stock market. No one has that kind of bad luck. As a result, you are likely to experience some fortunate years and some unfortunate ones. You don’t have to be an expert to figure out that your performance will likely decrease between 13.73 percent and 14.72 percent each year in such circumstance.
So, the main aim must be to invest regularly, and you will get “lucky” at times to get to invest at the lowest points and “unlucky” at times to invest at high points. But, in the long run, it won’t matter because your returns will be very similar, but, once again, consistency is the key. You need to be consistent with your investments and not lose focus on the bigger time frame irrespective of the “pandemics” in between.
Market forecasting consumes a tremendous amount of collective time and energy. Should you even bother thinking about/worrying about the best time to invest?
The trick is to invest on a regular basis and let compounding take care of the rest. “The stock market is a mechanism that transfers money from the impatient to the patient,” says another Warren Buffett statement.
(Saarthi for your dreams)