Steady And Consistent Wins The Race

Timing the market does not have to be a mental block for the retail investor. She can do just as well by regularly buying/investing

By: Tavaga Research

Investing in markets is often said to hinge on timing. If we get our timing right, then buying or selling stocks to rack up profits is a child’s play, goes the perception. The risky proposition (what defines ‘right timing’ and is it the same for everyone, everywhere?) prevents a lot of us from considering equities as a veritable means of earning wealth.

There are theories galore telling us how to time the market. Patterns such as the ‘cup with a handle’, tracing a stock’s movement are meant to indicate a good time to buy it. However, retail investors run a chance of misreading the signals. Or worse, they follow the herd without knowing the reason behind stock movements.

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It can boggle the best of minds, especially those without the required financial knowhow, to get into the nitty gritties to try and make their money earn for them. There are times when retail investors rush to sell stocks with growth potential to book early profits, and hold on to loss-making stocks that drag their portfolio down, in the hope of recovering their value.

But take a look at the chart below- it tells us that timing does not matter. Yes, buying when the market is at its lowest (the best scenario) will get us the highest returns. It is rarely a calculated move by the average investor, and mostly a fortuitous one.

But compared to it, a consistent but timing-ignorant approach won’t leave us far behind either. It, in fact, affords us returns which are way better than someone who ends up buying when the market is at its highest price (the worst scenario).