Each and every investor would like to know when the right time to invest is. The ideal time for one to invest is obviously when the market is at a much lower level. So as to do the market timing, one needs to predict the market movements. Is it possible to predict in advance as to whether the stock market has peaked or will still rise to greater heights or the market has bottomed out or will further crash?
Warren Buffet, one of the successful investors and the world’s third richest person says,
- Stop trying to predict the direction of the stock market, the economy, interest rates, or elections.
- Much success can be attributed to inactivity. Most investors cannot resist the temptation to constantly buy and sell.
- I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years.
It is highly not possible to predict the market always. The reason being stock market is not moving in a predictable or regular or particular pattern. But historically the stock market is moving up in the long term.
You could have seen a lot of success stories of people, who bought a good stock 10 or 15 years back and accumulated a good amount of wealth now because of the appreciation of those stock prices. But have you ever heard about a person accumulated wealth by timing the market or moving in and moving out of the market?
By timing you may make profits in a few transactions, but you will not be able to make profits forever. There is a lot of difference between making profit in a single transaction and being a successful investor forever. So time in the market is much more important than timing the market.
If there are investment experts who will be able to correctly predict the market they will not be writing or giving interviews about it in the media. They will be silently investing and making money without revealing their secret.
Successful Mutual funds houses are not timing the market. They admit that it is practically not possible to do it. That is why they always maintain a fully invested portfolio. They will maintain a very small portion of cash to meet the liquidity requirements. They are not moving in and moving out of the market. On the other hand, the fund houses which tried to time the market by sitting on cash have delivered below average returns during the present recovery of sensex from 9000 to 17000.
Most of the big names in the stock broking sector were opening more new branches in the upcountry side during the second half of 2007 (when the sensex is moving closer to 20000 levels), expecting the market will go up further and their business will grow. But within six months, market has collapsed. At the second half of the 2008 these companies decided to wind up their newer branches in the upcountry as they were expecting further downside. But again within next six months market has started recovery.
So, timing the market is really an obscure idea, investors should not fall prey for this. Perhaps a more appropriate question an individual investor should be asking is “Do I ever know when the right time to invest is?” The answer is “NO”. A long-term investor should invest on a regular basis during good and bad times. In the long-term, you will average out the ups and downs of the market.
Also, to be a successful long term investor, having a well drafted financial plan will be of immense help. To create a sound financial plan, I strongly recommend you to take advantage of
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