Three seemingly simple questions that one can ask of when investing in the equity markets is when to buy, when to sell or if should you hold on to the investments made? The answers to these three are not as simple as they seem. Predicting the market has never been a cakewalk, even for the best of the investing minds – save for a few aberrative instances. But can a normal investor time the market? More so, should you try to time the market? While most investment gurus would answer those questions in the negative, here are some pointers that can help you be safe rather than sorry while investing.
Think long term
A fundamental principle that any investor needs to follow is to think long term. A short-term strategy, which often looks more like a ‘get rich quick’ scheme is never a road toward successful return on investments. The variables that pan out in determining the direction of the market are way too many to give you a reasonably good view of where it is headed in the short run.
The only way to build a reasonably good investment strategy is by looking at where a majority of these variables will converge in the longer term and then make a decision accordingly. For instance, you could know the way macro-economic factors such as overall growth (measured in terms of the GDP) could pan out by looking at variables such as corporate performance or even statistical analogies. But, there is no way one can do that on a daily or even a weekly basis. The only way to study that data will be to look at the longer-term numbers extending beyond a quarter or two.
Be ready with what is required to change course
Timing the market involves taking quick and instant decisions to change course if need be. This calls for investors to be fully prepared to execute trades and complete them seamlessly so as to avoid their trades going bad. One has to be sure about aspects like keeping the demat account completely functional in order to ensure that shares| securities can be transferred when need be. It is important to complete the sale or purchase of shares which otherwise can fall through resulting in unforeseen losses from bad deliveries despite having got the direction of the market right.
Build reasonable expectations
One of the biggest mistakes that investors often make is expecting unreasonably high returns. Remember, there is always a reasonable rate of return that the markets will provide over the longer term. Holding on to your investments in anticipation of any further rise and hence a higher return from you can lead to disappointment. A good investment will always give you an opportunity to plow back what you earned if you take the profits earned out of the table. What is the benchmark of reasonable returns? Try to catch up with a rate of return which covers current inflation plus a couple of percentage points above rates offered by banks on simply putting your money into their deposits.
Consider your costs
No matter how lucrative getting in and out of the market may seem, investors have to consider the costs associated with their actions. Every transaction executed entails a cost that eats into your returns. The simple math of the costs vis-à-vis the returns will tell you how much you could have saved by not trying to time the market and rather staying invested to get to the returns you’ve wanted.
Listen to the right noise
The reason why
share market timing fails for most investors is that they listen to too much of what is being bandied around them. Prudence suggests, investors listen to the right voice rather than try to make sense of the noise around the markets in order to make the right decisions. Your financial advisor should be in a position to help you sift through the clutter of news to focus on those parts which will eventually help in getting you right on the direction of the market. Trust the experts to do their jobs well while you do yours.
Trust your broker | financial advisor
The starting point of your investment journey, of course, is opening a trading account with a stockbroker and a
demat account. These are essential tools. While a broker is a someone through whom you can place an order to buy and sell, a demat account is a digital platform which holds all your shares and also other investments in an electronic form. A thoughtful broker will support your decisions to buy, sell or hold. For instance, the Kotak Securities has for long been holding the hands of its customers backed by outstanding research capabilities they have built. The Kotak 3-in-1 account helps you enjoy the benefits of a bank account, demat Account & trading Account for seamless banking & trading experience.
Click here to know more.
“I can’t time stocks. I don’t know anybody else who can either,” said Warren Buffett. That should tell you what you are up against when you try to time the market. Between, had you decided to buy stocks on 23rd of May 2019 – the day election results were declared thinking that there was reasonable evidence to consider the markets will move up based on a thumping victory for the incumbents as predicted by the exit polls, you would still return negative on that day. For the record, the Sensex actually closed a whopping 300 points down that day after having crossed the 40,000 marks in morning trades – so much for market timing.
