- Good financial and non-financial posts I have read in last 30 days. I read a lot, but will share only few that I think would be worth your time.
- Useful posts written here on Stable Investor in last month – for those who somehow missed reading them.
- Some stuff that is lost in archives here.
- Random thoughts which I might not want to write a full post on or tweet about.
(Latest Update) – You can read an updated and more detailed analysis of the PE and other ratios here.
We decided to use this insight to boost our SIPs.
For our analysis, we started with SIP of Rs 5000 every month, from January 2000 and kept on investing till December 2011. A total of Rs 7.25 Lac was invested in 145 instalments. Now we add the Boost. Whenever markets PE fell below 15, an additional Rs 5000 was invested in that month i.e. a total of Rs 10,000 was invested in that particular month. This happened in 23 of the 145 months and an extra Rs 1.15 Lac boosted the normal investment of Rs 7.25 Lac. This took total investment to Rs 8.40 Lac.
So what is the current value of the investment? Did the boost help in earning higher returns? Read further. The investment of Rs 8.40 Lac stands at a Rs 23.8 Lac. And if SIP was not boosted by Rs 1.15 Lac, it would have stood at Rs 19 Lac.
In an earlier post about timing the markets, we saw that it doesn’t make sense in trying to time the markets. If earning a better-than-average return is the aim, it is enough to invest regularly in a disciplined manner rather than trying to time the markets.
Let’s suppose that you as have decided to invest at regular intervals. This type of investment can easily be executed by means of SIP or Systematic Investment Plans.
Above data shows that on increasing our investment by 15.9% (Investing more when market is trading at lower valuations), our overall investment value increases by 25%.
So to summarize,
- You should understand that there is no point in trying to time the market.
- Best way for common investors to enter markets is to invest via mutual funds and take the SIP route.
- If you are ready to track overall market PE regularly, you can augment your SIP investments as detailed above.
- But even after discussing the benefits of regular investments in markets & redundancy trying to time the markets, if you want to time the markets by investing in direct stocks, you should stick to shares of large & stable companies (Read about how to find Large Caps selling at massive Discounts!)
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.
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.
- 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.
- But if you still think that its easy to time the markets, then its better if you stick with shares of companies which are robust and have withstood the test of economic cycles. And there is nothing better if you can buy shares of such Large Caps which are available at Huge Discounts)
And wish you all a Merry Christmas to all the readers!