” Time or Timing in the market”

Investors get overloaded with information about market movements, trends , technical charts , different ratios and different financial data like GDP , IIP , P/E , inflation etc. This leads some investors to try to time the market.

I would like to take this opportunity to show what would have happened if you had NOT timed the market but just stayed invested for a long period of time.

There are 3 close friends named A , B and C working in different sectors . “A” works in capital  markets and thinks that he can time the market very well and he actually does. “B” works in the IT sector and keeps regular track of the market but is always scared of equity investments. Invariably, “B” ends up buying at the peak of the market as he finally fears a lost opportunity  . “C” works for the Military and has neither the time nor access to market data. He does a fixed monthly investment on the first day of every month.

All 3 of them invest in the Sensex and have been doing it since 1980. The table below shows their returns till March 2011.

A Fixed investment at lowest sensex value every year 17.39%
B Fixed investment at highest sensex value every year 16.00%
C Fixed investment on 1st day of every month 16.71%

Note : “A” has timed the market perfectly for the last 31 years which is clearly not possible in the real world.

­If you think 16.71 is not very big return , then do realize that even the property at Prabhat Road , Pune would not have generated this return.

Do realize that Warren Buffett – the most successful investor of all time and the third – richest person on the planet -has averaged 19 % on his investments over his entire career.

Lets now take the example of a specific mutual fund. -Birla Sunlife Frontline Equity Fund, a large and midcap category fund.

The fund inception date is Aug 2002 . It had completed 17 half yearly periods till Dec 2010 . If you had invested in this fund on its lowest NAV in each half yearly period ,your current value would been  Rs 6,02,680/- on total investment of Rs 1,70,000/- a return of 26.49 % ( Best case ). Whereas, a regular investment of Rs 10,000 on 1st of every six month period would have become Rs 5,54,347 /- – a return of 23.95 %.(Regular case).

As someone put it quite elegantly;

“ It is not the timing but the time in the market that matters”.

2 thoughts on “” Time or Timing in the market”

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