Market Timing Or Disciplined Investing – Which is More Sensible?

If you have read some of the older posts, you would have a fair idea about what Stable Investor is all about. And you will also understand that timing of stock markets is not what this website is interested in. And that is because for all practical purposes, it does not work!
A famous columnist once said,

“The market timer’s Hall of Fame is an empty room.” 

And the great stock picker Peter Lynch once remarked,

“I can’t recall ever once having seen the name a market timer on Forbes’ Annual List of Richest People.”
This clearly shows how successful (or unsuccessful) market timers have been. In an ideal world, an investor would have all relevant information and would know when to invest and when to get out of markets.
To explain these concepts, lets take a scenario, in which there are 3 investors – A, B and C. All three are ready to invest Rs 5000 every month from January 2000 onwards. But timings of their investments are different. 

Investor A invests at lowest index level during the month (i.e. A has all the information);

Investor B invests at highest index level during the month (i.e. B mistimes the market every month!); 

Investor C is indifferent to news flow and invests at month-end closing prices. Each one them has invested a total of Rs 7,20,000 in 144 months.
So where do A (Perfect Timer), B (Perfect Mistimer) & C (Indifferent Investor) stand at the end of 12 years?
Market Timing Make Money
This analysis shows that the difference between a Perfect Timer (A person who has all the insider information) and an Indifferent Investor (Does not care about intra-month fluctuations and has automated his investment process to invest at month ends) is of just 6%. Just 6%.

That is, if you are ready to invest in a disciplined manner for long term, having information and timing does not matter much. Even an indifferent person can make money by investing dispassionately.
So what does this analysis point to?

  • It should be understood that there is no point in trying to time the market. Though it has been tried by millions of people and people have made money and have become millionaires, the fact remains that it is neither easy nor feasible for a average investors like us.

  • Timing is possible. But only for those who are part of the inner circle – people who have insider information.

  • There is a difference between information and wisdom. An investor should be vary of all information being bombarded at him and one needs to be wise enough to filter out the noise.

  • As a regular retail investor, it makes sense to keep on investing in a disciplined manner. The reason being that there is not much to lose (6% – Refer to above example) if an investor decides to ditch time-the-markets approach.


And wish you all a Merry Christmas to all the readers!
Stock Market & Christmas
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