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D.Muthukrishnan (Muthu), Certified Financial Planner- Personal Financial Advisor

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No timing

Posted by Muthu on January 3, 2017

There are some who believe that market can be timed. They think that they can enter and exit at correct time capturing highs and avoiding lows. We believe that timing is not possible. Even if we get it right once or twice, it is very difficult to be consistently right.

We believe that markets are unpredictable and trying to time it is futile. We also believe that the best thing to do is to be in the markets through both ups and downs. This is the only way to get the long term returns offered by equity as an asset class.

I saw a small illustration in yesterday’s issue of ET Wealth and thought of sharing the same with you.

They have taken the period July 2011 to June 2016 where an investor invests Rs.10,000 every month in Birla Sun Life Frontline Equity Fund. He would have invested totally Rs.6 lakhs over a 5 year period. The value at end of June 2016 was Rs.9.26 lakhs providing an annualised return of 17.3%.

The above investor is someone like you who invest regularly with discipline irrespective of the market conditions.

Then comes the market timer A. He is smart enough to identify big falls beforehand. So he withdraws investments before 10 biggest falls and reinvest in the next SIP date. For him, the value of investment at end of June 2016 was Rs.8.91 lakhs with an annualised return of 15.62%.

Then comes the market timer B. He times his SIP in such a way that he is able to invest on the days of big fall, by advancing the SIP dates. For him, the value of investment at the end of June 2016 was Rs.9.33 lakhs with an annualised return of 17.27%.

The disciplined investor has earned better returns than both the market timers. Even assuming market timers can earn few percentage points more than disciplined investor, how to predict big falls or ups? We would not be able to predict even once leave alone consistently predicting ten such falls.

Time, discipline and patience are the essence for success in equity market. Continue to stick to these.

Also do not look at short term performances. For equity, look at 5 year averages. For debt funds like MIP, look at 3 year averages.

Also do not compare one fund in the portfolio with another. Only look at overall portfolio performance. In a given year a midcap fund and a large cap fund may show a completely different performance and it is absolutely ok to be so. Portfolios are consciously designed like that.

Let me complete this piece by sharing what Charlie Munger said in this regard.

“It is in the nature of stock markets to go way down from time to time. There is no system to avoid bad markets. You can’t do it unless you try to time the market, which is a seriously dumb thing to do. Conservative investing with steady savings, without expecting miracles, is the way to go.”- Charlie Munger

4 Responses to “No timing”

  1. Gov said

    Well said. Cheers. Try telling that to market timers.. who don’t seem to get it even after consistently getting it wrong.

  2. sp said

    Could you pls sometimes explain about debt fund and SWP, which can give the tax free quarterly/monthly payouts ?

  3. Abhi said

    Why has people stopped taking example of HDFC Top 200?

  4. GS Iyer said

    Nice post. I think timing the market has been a mere fallacy as markets tend to bounce sharper than at the rate they fall. Trying to catch a fall can reward but requires great knowledge of reversals and the factors that impact the fall. I have couple of times done the same mistake

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