Timing – Is it worth doing?

This is a very important topic to debate. There are two camps in the market, one who believe in timing & the other one who does not. We believe that for a Long term investor time spent in the market is more important than timing the market. The recent market move i.e last ten days is the best lesson for those who believe in timing the market. In last 10 days Sensex is up 9.5% in spite of high crude oil prices, Libyan crisis, risk of sovereign default in Portugal, Japanese Tsunami followed by nuclear radiations, Indian political uncertainty due to fresh wikileaks videos etc. This shows that market knows something which we don’t know. Market has its own wisdom of valuing stocks. Investors who tried to time the market and stayed in cash in anticipation of positive news flows would have missed the best ten days i.e 9.5% return. Market may have discounted all the bad news & started building up on pure fundamentals and fair valuations. This shows that market is bigger than individuals and we should respect it. Market makes opinions, opinions don’t make Markets.

Imagine if we could become rich instantly without making any serious effort – things would be really simple. But it’s just a wish. All of us know the laws of nature. A mango tree takes 12 years to give delicious mangoes (Gujarati Saying – Utavale Aamba na pake). If it bears the fruits before, these would be sour or rotten or both. Similarly, making money is a time-consuming process. Remember, if there was an easy way to make money, everyone would have followed it till it became irrelevant.

Many investors say that they will invest when bad news goes away but does not realize that with bad news even cheap prices would go away. Best time to invest is when news is adverse and nobody is buying. Below are some of famous quotes from legendary fund managers.

"After nearly 50 years in this business, I do not know anybody who has done it (market timing) successfully and consistently." (John C. Bogle in Common Sense on Mutual Funds)

"No one--not the pundits from the big brokerage firms, not the newsletter writers, not the mutual fund managers, and certainly no TV analyst--can predict where the market will go tomorrow or next year." (Wm Bernstein in The Four Pillars of Investing)

“There's something in people, you might even call it a little bit of a gambling instinct ... I tell people [investing] should be dull. It shouldn't be exciting. Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas Casino.” (Paul Samuelson in The Ultimate Guide to Indexing)

"Timing the market is for losers. Time in the market will get you to the winner's circle, and you'll sleep a lot better at night." (Michael LeBoeuf in The Millionaire in You)