Is Market Timing Really Important For Investors? – By Sidhavelayutham, Founder & CEO, Alice Blue

Is Market Timing Really Important For Investors? – By Sidhavelayutham, Founder & CEO, Alice Blue

Bangalore (Karnataka) [India], March 14: In the world of investing, one comes across multiple types of investors – one could be a short-term intraday trader while someone can be a long-term stock picker and finally there could be investors who consistently keep investing for the long-term.in the mutual fund in either an SIP or a lump-sum format. 

The crux of talking about all these types of market participants is that the choice of investment depends on a lot of factors including the individual’s objective, knowledge and risk-taking ability. However, irrespective of the level of knowledge of the participant it is an established fact in the world of stock market that no one can predict the market with 100% accuracy. 

Currently, the market is trading at an all-time high with the Nifty having crossed 22,500 levels and Sensex is soon to touch the 75,000 mark. A lot of short-term traders and long-term investors are feeling a real pressure of profit-booking and return to the market once there is a correction. However, there is no one on the planet who can guarantee that there will be a correction and till when it will last? In fact, it is almost impossible to predict what would happen in the very next minute of the live market. 

In the short-term/intraday scenario, the stock market is always a zero-sum game. These short-term traders work on the idea of market timing with their prediction and presumptions and a majority of the lot ends up on the losing side of the bet.

The other category of investors are long-term stock investors. They stay invested for years and are consistent with their investments in good companies. This helps them generate compounded returns over the long-term. A company will always have its ups and downs in the stock market due to short-term events. 

If the company is good at its business and generates consistent positive cash flows in the long-run, then it will surely reflect in its stock price over a period of time. That’s where these investors start generating wealth due to their regular investments made earlier during the bad and average performance days of the company. 

A third category of investors are the SIP investors, who invest consistently in mutual funds over a period of time irrespective of the market movement. This category of investors also don’t time the market. In fact, they have neither the time or the knowledge to understand individual companies and then invest. Their job is to identify the right fund and stay consistent with their investments in that fund over the long-term. This essentially helps these investors participate in the equity market with a significantly lower level of risk of going wrong with their investment.  

For the last two categories of investors, the most important principle is “time in the market” rather than “timing the market”. These are the participants who are most likely to generate significant returns over the long-term, although there is no denying the fact that exceptions could always be there. 

Remember, if one looks at the process of investment individually for each category of these participants, the probability of the second and third category of investors to succeed and generate wealth over the short-term traders is certainly much higher.  

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