Believe it or not! Stock market, known as share market in common parlance, is a place which has failed even a gem of market experts for its unpredictable nature and the uneven pattern of operations.
The market has left most of the market experts red-faced for their farce predictions about its movement. For instance, just at the beginning of the pandemic in early 2020, the market experts dished out that the Sensex would hit the 50,000 mark.
But contrary to these expert predictions, the market crashed to 27,500 just in one month. At that time, the Sensex was at above the 41,000 mark.
This pandemic-induced dramatic fall of the market unnerved investors and most of them resorted to panic selling of their stock to save themselves from further losses. In a state of nervousness, the experts vomited their opinions loaded with predictions that the market might take years together to regain the pre-pandemic levels. But, again, the predictions of these ‘talented’ experts proved wrong as the market broke all previous records and crossed the 60,000 mark – registering an increase of more than 120% from the lows of the pandemic period.
The investors who stayed in the market and didn’t sell their stocks in panic witnessed the value of their investment portfolio trebling. Precisely, historical corrections observed in the market have proved that those who stayed invested during the time of turmoil were handsomely rewarded by the market.
Basically, time and timing play a crucial role in the investment strategy of an investor.
Let me start reproducing a quote: “Time is money”. Every one of us has routinely been quoting this Benjamin Franklin’s maxim. It has remained a much easier way to explain time as the most valuable resource to capitalize on opportunities.
Like in other aspects of day to day life, this Time is equally one of the most important factors in investment matters. Time is always short for those who want to make a quick buck by parking their money in the investment arena. They are known as traders in the financial market as their investment horizon is of few hours or at the most few days. They have necessarily to master the timing of investment and a minor error can leave them penniless.
Basically, deciding how to invest our time is a formidable task. I am sure, as an investor your primary goal would be to calculate return on investment (ROI). You aim to maximise return on the money you invest. It would be a different ball game if you as an investor start to think of time as your primary investment. Everything you do is an investment of time. In many ways time is more valuable than money. You will always have the opportunity to multiply your money through various investment instruments. But once time has been spent it’s gone forever. Remember, when you take time as a commodity, and consider all of your actions in the market as investments, it changes the way you approach every day decisions.
What is this ‘time and timing’ strategy in investment matters?
There are two things; speculation & investing, which you as an investor have to understand. When you try to imagine the future movement of the share market, you are speculating and take your investment position accordingly. But when it comes to investing, your focus is on the quality of shares and holding on to them for the long term. In simpler terms, when you speculate, you are in the business of timing the market. On the other hand, when you focus on the quality of shares, you let time be on your side and capitalize on the power of compounding in investment matters.
Does that mean time the market strategy works better than timing the market?
See, when we talk of time in the market, it means we are looking at the patience of an investor. It has been established that the ups and downs of the markets over a period of time tend to get smoothened. Quality shares held on over a longer period of time tend to outperform any kind of strategy for timing the market. As a patient investor, you are able to invest when valuations are attractive and vice versa.
All of us know that the market is cycling with good days and bad days. With this cycle, the market makes investors vulnerable who are trying their luck by timing the market. During any correction in the market, there are chances to miss good days for those who bank upon timing the market. Even, the timing concept can push an investor to buy stocks when bad days are cycling the market.
Notably, the ‘timing-happy’ investors are lured by the hype created by the media and a breed of market experts around a set of stocks which may not turn out to be a true picture of the market scenario. At the end, the investors end up registering losses.
In nutshell, the expert perspective is in favour of time in the market over timing.
What are the guidelines when it comes to time and timing in the stock market?
So using time horizons in investing is of utmost importance. As an investor you need to ask yourself about the time horizon that suits you before parking your money in any investment instrument. Once you are clear about this, you can easily arrive at a decision about the type of investment vehicle you can bank upon. Not only this, locating appropriate timing for your investment would be helping you which investments to avoid and how long to hold your investment. Don’t forget to workout expenses while considering the time frame of your investment.
Even as there are no listed guidelines or hard-and-fast rules, some generally agreed-upon guidelines are there to help you decide appropriate investment opportunities for various timelines. One of the hard facts about the stock market is that it is highly volatile in nature. Volatility is a huge risk in the market and in this context the base of your risk mitigation would be creating your investment portfolio based on time frame. Shorter the period of your investment, more is the risk of falling prey to the market volatility. As already explained, in investments having a time horizon of long duration, market volatility that causes the value of your investment to plunge may not be an immediate danger given that you have a long time at your disposal to recover.
While in the market, don’t invest your time too heavily in one area and not enough in another sector. Always try to strike perfect balance by timing your investment in different areas. This is one of the keys to stay safe to a large extent when you stay invested in volatile market conditions. Precisely, knowing your investment time horizon will make your investment productive and your life pleasurable.
So the bottom line is that time is more important than money. Time can make you money, and well invested time can multiply your wealth. Here every decision is an investment.
Disclaimer: The views and opinions expressed in this article are the personal opinions of the author.
The facts, analysis, assumptions and perspective appearing in the article do not reflect the views of GK.