How to Time the Market?

Hi Asav,
  In all your posts you are mentioning like  start early in all in investments.But I want to invest in mutual funds through SIP.can I wait  will till market tanks ?.I am felling like let us wait for some more time and enter when Sensex drops..what do you suggest?.
Thanks

Recently a reader of this Blog has asked me the above Question. Well, Let us discuss today about this. First of all let me tell you 2 very oldest proverbs of Investing in Market.

01) It’s Not about Timing the Market But it’s Time in the Market…

02) The Best Time of Investing was 20 years Before & The Second Best Time is NOW… So Start Investing NOW…!!!!

Both of the above proverbs suggest the importance of Time. Let me tell you that, Investment is not only the game of Money. Unfortunately most of the people have a false belief that, Investment is a game of Money. But Investment is a Game of,

01) Money &
02) Time Both…!!!

Yes, “Time” is as important element in the Investment as Money. You have to Invest both Money & Time in the game of Investment to win. This is because of “The Power of Compound Interest”. Unless you invest Time in your Investment, The Compound interest will never work for you and grow your Investments. To learn more about “The Power of Compound Interest”, Simply go to the “Compound Interest” Category on the Right Column bar of this Blog. You will find wealth of Information about Compound interest over there.

So Remember, We invest more time in the Investment to allow the compound interest work in favour of you. This is the logic behind staying invested for long time in any Investment. And that’s why I say the early you start, the more time you will be able to Invest…

Ok…. Now, Back to your Main Query….!!!!

You ask me in your query that, You want to Invest in mutual funds via SIP & you want to wait to tank the market Right?…..

Well. Theoretically This Sounds Very Cool…… Means Invest at the Bottom of the Market & Exit the market on the Top & Again Invest at the Bottom of the Market & so on….!!!!!

But Honestly, ask yourself that, Practically How is it Possible?…..

Everybody knows that, if they want to make profit in the stock market, they have to buy low and sell high. But Practically How to make this thing possible? Because Nobody has the Crystal Ball.

On 26th January 2008, When the Sensex was 20,800….. It was a Top of the Sensex…. Than why people were buying the stock? If everybody knew that, The Sensex was going to crash than everybody would have sold their shares and book the profit. But at that time, people were thinking that it will touch 28,000 level at the end of December 2008.

Now, in December 2008. The Sensex was around 8000 level. It was the Bottom of the Sensex. Than Why people had not buy shares? Because they were thinking that The Sensex will touch 6000 level and from that level they will do the Bottom fishing but unfortunately, 8000 level was the Bottom of the Sensex and it bounce back from that level.

Most of the people in India blindly believe the News Channels, Hot Tips & Rumors. But in reality, Nobody has the Crystal Ball to predict the next movement of the Sensex because it’s a purely Random Event.

Now, You are saying that, you want to wait until Sensex bottom outs. But Can anyone tell me that, What is the Bottom of the Sensex?

So Be Realistic….. Nobody ever can predict the Bottom or roof of the Sensex even Warren Buffet & Ambanis can’t predict This…….

So We have to buy more when Sensex is low and Buy Less when the Sensex is High. If you buy shares over the time than you will be drastically able to reduce your over all entry price in the Market.

And that’s why SIP (Systemic Investment Plans) are designed. SIPs are to control your emotions (Greed & Fear). If you today start SIP in some good Equity Diversified Mutual Funds than you will be able to buy more Units when the Market is Down and less Units when the market is Up. So Over the Long time horizon (Over 5 Years), your Over all Entry price in the market will be reduced drastically in comparison to those who have invested lump-sum at today’s Sensex Level (15,000).

The Mathematics behind the SIPs run in such a Manner that you don’t have to time the market. And yeah….. Never try to time the market…. Even if you succeed few times to time the market, it is IMPOSSIBLE to Time the market for whole of your life consistently. So forget the concept, Hot tips & advises about Timing the Market……

After all, It’s Time in the market….!!!!!