Many people ask this question, when it is just the right time to invest in markets. If at all, someone asks me, I reply ‘Never’. This might be a pessimistic answer but it is indeed the hard reality. Markets move more on the basis of underlying fundamentals than following rigid mathematical equations.
Timing the market is all about ‘getting in’ and ‘moving out’ at the right time. Going by the law of probability, there are equal chances of getting right and getting wrong. Moving ahead, getting right both times is even more difficult with just 25% probability. The common sense rules to stock investing say that one should enter low and exit high. But the general tendency of the investing majority is to buy at high prices when the stock is experiencing euphoric buying and selling at low prices when the stock is experiencing panic selling.
Disciplined and consistent approach is, therefore, the key to investing and it should intend to minimize the discretion in timing the investment. Here is how you can exercise discipline in stock investing:
- Systematic Investments – Being into equity market, the best thing to do is to have a plan and then stick to it. One must start investing in a diversified portfolio consistently over a period. Don’t worry if the money is invested at period highs for some time, because it does not matter in the long run as the cost of investment gets averaged over time and stock markets are indeed known to fetch positive returns over longer tenors. Further, registering a Systematic Investment Plan (SIP) snatches the liberty of investing at our own will from us, which only helps in investing consistently. Otherwise, in the back of mind, the investment proposal gets postponed endlessly for the wait of further lower prices when the market is falling, or just waiting for prices to lower when the markets is rising.
- Time in the Market – Instead of timing the market, you should instead focus on ‘time in the market’. By assigning time to your goals, you are no longer affected by daily price volatilities. It might be true that majority of the appreciation in the stock happens over very few days in the year but allowing complete time to your investments, you also allow them to be a part of that rally. Further, stock market investments always pay off well in the long run.
- Don’t Follow the herd approach – When it comes to investing, going with the group does not work. It is always good to remember what Warren Buffett had to advice: “Be fearful when others are greedy, and be greedy when others are fearful.“
- Don’t Watch Portfolio Too Frequently – Keeping a too frequent watch at the portfolio results in getting nervous by the volatility of the market. When you invest the money in certain stocks, you often have some time frame in mind for the stocks to achieve their targets. However, watching the portfolio on regular basis does one of the two things – making us overconfident, if our move is going right, or making us fearful of loss, if the move is going in the opposite direction. Any of these two results will push to make another move and being affected by external factors, the move is likely to be emotional than well-thought off. The odds are mostly in the favour of us doing something wrong.
So, the next time, you are stuck into timing the market to invest, you should definitely consider these principles to master the art of investing.
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