Time in the market or Timing the market.
One often hears that Time in the market is essential than timing the market. Is that so?
I believe both are equally important.
Time in the market refers to the compounding effect of putting in SIPs or investing and forgetting as it gains reinvestment and returns. But not necessarily that is true. Inflation beats down the compounding. Invest at 6% and inflation is 7% you will gain on compounding but lose on inflation.
Timing the market means buying when equity or whatever is low (generally refers to equity) and then selling when the equity is high making a good profit. The reason many discourage this (particularly sellers of equity with promising returns) is they feel a normal customer is not into checking the daily rates and quarterly reports. This timing is primarily for traders. As an investor, generally when bad news comes (like 500% tariff) or a calamity which temporarily blips a good stock and sees a dip, you may want to buy it for it to get over the bad news. Thus technically, you could time the market or when markets are down and index is bought at lower rates is also timing the market and selling when the market is hot.
Reason why many also do not encourage timing the market is our greed and uncertainty. Two key things that keep the investor group in a mediocre status is when to buy and when to sell. Is the market too low or will it go lower (uncertainty) and when the market is high will it go still higher (greed). Once you set your goals (maybe 25% or 50%, rise and I will sell) sell it and do not worry- like only if i had kept it, I could have earned 1000%. These things happen in life- be it to the topmost or bottom most investor. There is no fixed formula to achieve what top investor achieves. It all boils down to probability (some inside information) and amount of investment you bet. 10 Rs even with 100% return will get you 20 Rs. The same 50 Lakhs will get you 1 crore. Your ability to invest (needing a steady and ensuring a stable life or can be on the streets attitude) determines if you are a 10 Rs investor or 50 Lakh investor.
One final piece of advice- Do not go for the TIP, go for the DIP.
If market is really falling, good chance you could pick some stocks to ride it when the market is rising. So, to me, Timing is not bad idea.
See my blog on movement in the market.
Recent studies have shown that timing the market at lowest (not always possible) and timing the market at the highest gave a differential return of 2.5% or there about. Not much considering one never knows the top or bottom. Only age old stats can be used for this.
My policy has been
a) 25-30% return in a fund. liquidate some.
b) 8-9% return in a fund. hold and steady investing.
c) -ve or 2% return. Invest more if good and non fraudulent companies.
Life can be two types. Either you believe no one will survive- a $ or a million $ is of no use to you then or believe that world will revisit normalcy and revert to normal after the blip and your investments will make money. Choice is yours.
