Indian share market is full of hiccups, highs and lows, twist and turns as a result of change in policies, politics, pressure from globalization, etc. Such a dynamic environment in itself always makes an investor nag about some things: which is better, beating the market by taking on the most appropriate action at the exact time, or is it better to just flow with the current and allow time to do the work?
In this text, we will observe the question of which is better: timing the market or time in the market in more detail.
Explaining The Concept Of Market Timing
Let us begin with the market timing strategy which is more often than not based on guess work. Using this strategy, an investor takes a position in the stock market, based on anticipated market direction, and promptly after any change – buy or sell the stock.
Even though a lot of people say that timing the market is not a good strategy for investing because it does not have any fundamental reasoning and it is impossible to time regularly the ups and downs of the market, quite a number still use this in their investment strategies.
The Concept of Time in the Market
Time in the market is about putting the investment on a time scale that entails not just financial commitments. Rather, mentally as it, time in the market requires the investor to be in the security for a long period of time. Indeed, this time in the market strategy is regarded as credible as allows the investor to keep calm and avoid making emotional choices or rushed decisions.
Understanding Time in the Market
Time in the market speaks of time spent by the investor too on the investment besides just the money as it calls for the investor to remain invested in the security for a long period of time. Time in the market approach is seen to be very effective as it encourages the investor to remain calm and discipline himself/her from any irrational decisions that may arise.
In this approach, the investor will only ever make a move concerning the security without the passage of time:
- The investor’s purpose of buying the security has fundamentally altered.; or
- The goal of the investor has been realised.
What Causes the Stock Markets to Rise?
While one is in the stock market, it is very common for one to intrigue what are the factors that cause the stock market to rise?
Let us analyse some of the factors which are every time the market is on the rise:
An increase in resulting Demand
The stock market works on a basic principle of supply and demand. An increase in the level of commodities desired leads to an increase in the commodity’s cost.
Earnings Potential Growth
The capacity of an asset class to generate additional returns encourages the stock market to increase because institutional investors are ready to plunge in large amounts.
Time, Market Timing, and All-Time Highs
Having understood much on time in the market and time for the market, let us move on to the next milestone question. When is the most appropriate time to invest?
Most of the time, investors perceive the segment of the market at an all-time high as being full of risks because they consider such high rates as exceptional and tend to postpone and wait for corrections. Nevertheless, given the trends from the data over the past two decades, it is such a common phenomenon that it would be wrong to say that there are any rare ‘all time high’ occasions.
For instance, Nifty 50 from 2000 to 2022. As seen the stock market managed to register a new high every after 5 months or so leading to profitability going beyond a certain limit. Infact, new highs have been achieved every year since 2013 except the year 2016.
In as much as choosing the period of investing one’s money is a matter of the individual, it should be borne in mind that with companies registering profits, the stock market is also expected to hit higher levels in the near term.
Essential Reasons Why Staying Invested Is More Beneficial Than Trying to Predict the Market
Myriad advantages have been very vocally weighed in favor of time in the market rather than market timing.
Consider the following three points that will be very enticing for you to adopt the time in the market approach:
Unpredictable Nature of Stocks
Doing stocks analysis and forecasting stock price movement involves a lot of detailed work, thinking, researching and most importantly – it involves plenty of movement from one place to another. The sad thing is that no matter how well a person can develop those skills; stock movement is still highly unpredictable. Furthermore, even daily office work where you are looking up “How timing the market today?” fifty times is quite exhausting.
Short-Term Underperformance
Short-term underperformance is a normal occurrence today, even among well-managed funds.
Effect of Transaction Cost
Investors who employ the market timing method in trading usually ignore the cost of transaction involved in frequently buying and selling of stocks, which cumulatively over the years becomes quite a significant amount.
Concluding Remarks
Predicting stock market behavior is not an easy task and although it may be beneficial in assessing specific situations, market timing would ruin the experience of investment and eradicate all the chances, which make time in the market a beneficial option for those looking for consistent gains.