Friday, October 7, 2011

How to time the markets right?

This article, contrary to its title will NOT teach you to time the market. And why is that? Simply because, you cannot learn to time the markets perfectly! Warren Buffet the world’s most successful investor famously said – “I know what events will unfold in the markets but I do not know when those events will unfold”. Switch on your television and check to see what each expert thinks the Stock Market would close at. Each self-proclaimed expert has a different view and when you have a 100 views, one of them is bound to be correct!

“Sir, this is a good time to enter the market. The market has almost bottomed out!” - Sound familiar?
My broker called me last Monday saying something very similar. However the market fell another couple of hundred points the next day. Unfazed, he called me that day saying that “There is no better time than this to buy!” I have got to admit that guy’s audacity and resolve. I agree that the markets have corrected significantly and many stocks are trading at attractive valuations but making sweeping statements like “If you do not buy today, you are missing the chance of a lifetime” is absolute nonsense. Nobody knows for sure when is the best time to enter the market, and nobody knows for sure if the market correction will stop at this level or would continue to fall.

You have to understand the reason why your Broker and the TV anchor tells you to buy stocks everyday. Your broker makes money only when you buy or sell stocks. If you simply wait – you are no longer profitable to him. So he gives you day trading tips, Futures trading tips, short term holding tips, medium term holding tips, long term holding tips etc. Basically he wants you to continuously churn your portfolio. And you TV anchor? If he asks you to wait 3 months before you buy stocks, they lose a viewer for the next 3 months!

So what do they say? They tell you to ‘get out of Volatile sectors’ and enter ‘defensive sectors like FMCG’. And tell you how to trade ‘rate sensitive stocks’ with terms like ‘shorting at the upper end of the rate cycle’.

Warren Buffet who holds stocks sometimes even for decades at a time once remarked – “If you ask a Barber ‘do I need a haircut’ – he would always respond with ‘This way Sir’!”

Have clear Investment Objectives and an Investment Plan! If you want to invest in Equities, remember that equities reward the patient and disciplined investor & will someday burn the fingers of the impatient speculator. If you feel you need help with investing, there is a lot of information on the internet (and articles on this blog J). If you still feel you need help, please visit a good Financial Planner who would help you create a financial plan.

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