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Ventura Wealth Clients
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What’s the best time to buy and sell stocks? Should I buy at the Current Market Price (CMP) or wait for some more time? Should I buy stocks when they fall or when they rise?  Many investors face this dilemma irrespective of their experience in the stock market. Similarly, mutual fund investors too wonder what the best SIP date to invest in equity mutual funds is.

If you too have tussled with these questions, read on...

Here’s why you shouldn’t bother much about timing the market

In pursuit of timing the perfect entry and exit, many investors forget to appreciate the power of compounding.

Let’s assume you invested Rs 10 lakh in a portfolio of stocks for three years and your investments fetched you 12% CAGR (Compounded Annual Growth Rate) returns.  As against that, even if you earned just 10% CAGR returns but increased your holding period from 3 years to 5 years, it would have made a noticeable difference to the performance of your investment portfolio.

‘NOW’ is the right to invest in stocks

When you don’t give your investments enough time to grow, you start depending more on earning higher returns by timing the market. And as the market history suggests, no investor has consistently managed to time the market for a long time.

If you are new to stock market investing, instead of bothering about the right time to invest in stocks you may spend some time to decide what your personalised asset allocation should be. For instance, a 25-year old unmarried individual can take higher risks and may have a longer time horizon to achieve some important life goals such as retirement. Contrary to that, the risk appetite of a person in their early 50s would be lower given the focus of securing a corpus for retirement.

A thumb rule to invest in equities

A thumb rule suggests that your maximum equity allocation can be 100 minus your age. In other words, for a 25-year old investor it could be 75% and for a 35-year old person it could be 65% and so on.  This number of course is indicative and depends vastly on your risk appetite.

Here’s how you can start

Choosing multiple SIP dates…

You eliminate the need to time the market when you start an SIP (Systematic Investment Plan) in an equity mutual fund scheme. SIPs allow you to buy at different levels without intervening every time markets go up or down. So any date is fine as long as you stick to your SIPs and don’t stop them abruptly unless the scheme you have invested in has been consistently underperforming.

If you invest in multiple schemes, you may choose multiple SIP dates say 7th, 15th and 24th instead of just one to further defuse the role of market timing.

How savvy investors/traders decide when to buy a stock?

Professional investors who have already taken care of their personal asset allocation and are working largely towards wealth maximisation may think slightly differently.

They might pay close attention to the fundamentals, return ratios and long term prospects of the companies they are looking to invest in. When stock valuations appear cheap vis-à-vis their prospects, they tend to buy stocks and sell when the valuations look stretched and the prospects appear lacklustre.

On the other hand, professional traders might not care much about personalised asset allocation or the long term fundamentals of companies they are investing in. However it is important to remember that there decisions are taken from the perspective of active trading & not passive investment. They will rely more on market momentum and try to take the maximum advantage of market trends.

In a nutshell

Unless you are a professional trader/investor, worrying about market timing may be unpredictable for you. Instead, you can rely on the the power of compounding and make sound investments with a long term view.

 

Disclaimer:

The blog is for information purposes only and anything mentioned herein shouldn’t be construed as a fundamental reason to buy/hold/sell any stock. Furthermore, the information provided in the blog and observations made there shouldn’t be treated as the extension of recommendations made on the other properties of Ventura Securities. If you follow any research recommendations made by our fundamental or technical experts, you should also read associated risk factors and disclaimers.

We strongly suggest you consult your financial advisor before taking any decision pertaining to your finances.

We, Ventura Securities Ltd, (SEBI Registration Number INH000001634) its Analysts & Associates with regard to the blog article hereby solemnly declare & disclose that:

We do not have any financial interest of any nature in the company. We do not individually or collectively hold 1% or more of the securities of the company. We do not have any other material conflict of interest in the company. We do not act as a market maker in the securities of the company. We do not have any directorships or other material relationships with the company.

We do not have any personal interests in the securities of the company. We do not have any past significant relationships with the company such as Investment Banking or other advisory assignments or intermediary relationships. We are not responsible for the risk associated with the investment/disinvestment decision made on the basis of this blog article.

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