An investment in equity market to create
wealth is like running a long distance marathon (or a five day cricket match) not
just finishing a 100 meter race (or 20/20 in cricket). We cannot time the
market but if we spend time in the market we are going to run the race. Like in
a race where a sprinter overtakes a marathoner at the beginning, but these
gains are slowly reduces and by the end of the race it may be totally reversed.
Similarly in the capital market or the investment world we need to spend more
time and with consistency to have a bigger wealth. Many times it happens that
the returns are not as per our expectations or sometimes even negative for
short duration, this is the time to have patience and may be to strategies your
investments; not to take out everything from the market. We have seen
historically , many times the biggest portion of returns come from short
periods of time but trying to identify those periods and make investments only
on those period is an almost impossible task, so better to remain invested and
let your investments itself get that time and grow rather than trying to get in
and out. By trying to time the market we also run a risk of being out of the market
at that particular time when we could have earned the most. For example last
week on 29 Feb’16 (budget day) market was very volatile and ended in negative
but by the next day market had found the reasons to cheer and by the end of the
week it was up by almost 6.5%, If we sold out on 29 Feb due to budget proposals
we would have actually lost a 6.5% gain just in one week, the biggest weekly
gain of last four years.
Take for example the biggest investment guru
Warren Buffett, If we look at his past performance we may find that he is not
always being the best investor. There have been many other sprinting money
managers who have produced better returns. But what separates Buffett from
others is that he’s been doing it for more than 50 years. He didn’t rely
on the strategy of coming in and out of the market to create his wealth
but by simply choosing the right stock and remain in the market. No
wonder, 90 percent of Buffett’s wealth was created after his 60th birthday.
Peter Lynch, the legendary and extremely
successful fund manager, revealed a very surprising and interesting statistics
about his fund. According to him more than half of the investors in his fund
lost money. And these were those investors who were trying to time the entry
and exit to Lynch’s fund. They would jump in just after a couple of good
quarters and went out after few bad quarters. Those investors who stayed
invested with the fund for long time, benefited the most from his long
term performance.
Wealth creation and Investments is like a five day cricket match
(not a 20/20) where it is more important to remain on the crease as much as
possible, the run rate is secondary, If we stay on the wicket runs will keep on
coming some time more sometime less. You have to be ‘in the game’ to win it.
Remember in investments what counts is the time
we remain with the market and
not
timing the market.
So if we wish to be an investor and want to
create wealth, we should treat our investments as marathon or a test match
where slow steadily wins the race. By trying to predict the market we may
actually burn more of our capital then earn and also moving our blood pressure
along with the market.
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