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Stock Market Investment: Why is ‘Time Spent’ more important than ‘Timing the Market’?

It is repeatedly said that you need to ‘Spend time in the market instead of timing the market’. What does it essentially mean?

Stock Market Investment: Why is ‘Time Spent’ more important than ‘Timing the Market’?
The unpredictability of the markets and the uneven pattern of the movements make it impossible for investors who try to time the market to generate wealth.

The act of investing is aimed at creating adequate wealth to fulfil various financial goals that all individuals aspire to attain. Such goals may range from purchasing your dream house or a car, children’s higher education and marriages to a foreign trip or your retirement.

It goes without saying that each and every financial goal has a specific time-frame – some can be achieved in the short to medium term while others are long-term goals. Since financial goals have a time-frame to reach, so is the gestation period of the investments to bear fruits. It’s worth remembering that there is no magic wand which can grow your money overnight. No shortcuts can ensure the fulfilment of financial goals in the shortest possible time. Investments need time to yield the desired result.

Therefore, discipline and patience are among the must-have factors every investor should unconditionally have to ride and experience a successful investment journey. But it is also true that the majority does not make money as discipline and patience are two rare qualities which not all have despite being well aware of their importance. To make it possible, it is repeatedly said that you need to ‘Spend time in the market instead of timing the market’. What does it essentially mean?

Markets, as you know, are continually dynamic as there is a continuous price discovery mechanism at work for the underlying securities. Thus, they do not move linearly. Instead, market movements are pretty erratic, uncertain and beyond anybody’s prediction. Ups and downs in the markets are everyday events. Cycles – bullish and bearish -are part and parcel of the market. The fact of the matter is, without such cycles, the market does not remain a market. Instead, corrections and volatility – short-term or medium-term – are inseparable features of a dynamic market that throw opportunities to buy and accumulate stock and units at lower prices. Without such opportunities – big and small -wealth creation would be next to impossible.

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The unpredictability of the markets and the uneven pattern of the movements make it impossible for investors who try to time the market to generate wealth. It is nothing more than mere luck and probably a coincidence if investors emerge successful all the time by timing their entry and exit in the market. Such investors are rare or even non-existing. Those who try this strategy often end up burning their fingers, leading either to their permanent exclusion from the market or prolonged waiting on the sidelines.

Let’s be very clear — nobody can predict the markets. Those who claim to do so are either making a fool of themselves or fooling the investors. History is full of such events when after a few years of flat or negative performance, the markets gave tremendous returns in a matter of a year or two. The recent pandemic is the latest example. Just before the pandemic in early 2020, market experts predicted Sensex to hit the 50,000 mark. But what happened is in front of us. The index crashed to a level of 27,500 in a matter of a month in April of the same year from above the 41,000 mark.

Amid growing uncertainty, a general census built up among investors and market experts said that markets might take 3-4 years to regain the pre-pandemic levels. All were proved wrong. Within 18 months, stocks regained the previous peaks and significantly jumped to surpass the 61,000 mark – a historic high and a rise of over 120% in absolute terms from the lows of the pandemic.

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If investors had not sold off due to panic in April of 2020 and stayed invested while using the following corrections to accumulate more units at throw-away prices, their wealth would have doubled or even trebled during the period. Similar was the situation back during the 2008 global meltdown. Markets recovered almost all the losses within a year after hitting bottom. After the long consolidation phases of 2000-2004 and 2009-2013, markets rewarded investors handsomely who remained invested.

Adhil Shetty, CEO, Bankbazaar.com, says, “It’s worth reminding ourselves that ups and downs are cyclical but in the long run, the markets have had a track record for growth. Staying in the market with a focus on goals tends to reward investors with serious wealth creation.”

Had you stayed invested and spent time in the market, you would have emerged wealthier. A simple but sure shot mantra to be a successful investor is just to remain in the market, irrespective of market cycles. It’s worth reminding that to Win a Game, you must be in the game. The unnecessary exits and entries just take away the magical impact of compounding.

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