The experiences that we often come across in our day to day activities in life also offer many exciting lessons. Some of these lessons are relevant in stock market investing too.
Here’s an interesting experience shared by one of our readers who also happens to be a long term share market investor.
“I recently attended a party with a huge gathering and sat in the front row of seats. A lady started distributing Paneer tikkas from the last row, and unfortunately, it didn't reach us as we were sitting in the first row.”
“Another lady started serving soft drinks, from the first line of seats. But eagerly, I had already moved to the last row and, so, the drink didn't reach me. I felt irritated and stood up to leave."
“But, then, I saw two ladies again, each with a big tray of spring rolls. This time, I tried to be smarter by sitting in the middle row. One of the ladies started sharing the rolls from the front row, and the second lady started distributing from the back row. When they reached the middle row where I was sitting, it got over again!"
“Frustrated, I bent my head, looking down at the floor. Precisely at that moment, a third lady tapped me on the shoulder and held out her tray. I stretched my hand towards the tray and guess what was in it?"
Honestly, I enjoyed reading this experience as much as you must have did. But did you notice the moral of the story and its relevance in investing?
Moral of the story and its importance for stock market investors
Well, the moral is don’t try to time the markets by trying to catch the highs or lows.
If you invest in good stocks and are willing to wait patiently, good returns are bound to follow. On contrast, those who attempt to time the market end up neither catching the lows or riding the bull wave.
We often come across some common statements by stock market investors who try to time the market, such as:
“Stock markets are correcting. I will wait for the prices to bottom out before investing.”
“Stock markets are at new highs. Now it is risky to invest.”
While these statements may be partly true, the whole point is in the process of waiting for the bottom, and investors miss out on the chance to participate in the rally when the market cycle changes.
Nobody can predict the next market correction. It could be just around the corner. Or may not happen for another decade. But yes, by waiting on the sidelines, an investor will find himself losing out on some of the stock market’s best periods of returns. Click here to read more about behavioural biases in investing.
As rightly said by Peter Lynch "Far more money has been lost by investors trying to anticipate corrections than lost in the corrections themselves."
The right way to invest
Maintaining an ideal portfolio of 15-18 stocks from diverse sectors bought based on strong fundamentals is the best way to invest. Such a portfolio will be relatively independent of the overall market movements with the ultimate goal of long term wealth creation. Know more.