Timing the market is not important | Value Research … and here’s why you shouldn’t worry about it
Learning

Timing the market is not important

... and here's why you shouldn't worry about it

Are you someone who constantly fears that you made an investment at the wrong time? Or, do you constantly seek clues to time your investment? Well, no need to fear. If you have a long investment horizon, your investments will (more likely than not) give you positive returns. Of course, this assumes that you have picked good companies in the first place.

You might wonder how can we be so sure of it? We went through some data and checked it ourselves. We compared the annual rolling returns of buying low and selling high against buying high and selling low. We used the 52-week high and low values of Sensex since FY 1995 for our analysis. The returns were calculated across various tenures, starting from one year all the way to 25 years. The following chart presents the median of the various rolling returns calculated.

Does the graph surprise you? You probably didn't expect the returns to be converging over time. For horizons less than five years, the outcome is quite grim if you buy at the highest price. But if you have (read should have) an investment horizon of more than five years, then you shouldn't worry as much (given that you have selected good companies).

Yes, we all want to purchase at the lowest price we can. However, that is next to impossible. And it is not that you would always end up buying at the highest price. Moreover, the 52-week high might not necessarily be the true value of the company. It could be even higher. So, don't get bogged down by these things. Focus more on the quality of the companies that you select rather than on timing the market.

Suggested read: Time in the market vs timing the market


Recommended Stories

Other Categories