'Oh My God!! Did You see the Sensex? It has crossed 49k!! These are all time high levels. I am getting scared. Looks like I should redeem all my investments.' Said Sameer, a 34 years Old IT Professional.
'Yes, it has crossed 49k. But what makes you scared? And Why Would you want to redeem?' Asked Niraj, his friend.
Sameer: Aren't you scared ? This is an All-Time-High that the market has hit.
Niraj: No, I am not scared. And lets re-frame it. Its not 'All-Time-High'. Its 'Till-Date-High'.
Sameer: What's the difference ?
Niraj: If you observe the markets from last 30-40 years, they have always been making higher tops and higher bottoms. So whenever people exited thinking it is 'All-Time-High', market proved them wrong by making a new high. Let me give you some examples :
1. In January 2000, The Sensex hit a high of 5721 and then it fell to 2600 levels in Sep 2001. Thus, when the markets again crossed 5721 and hit 6000 in Jan 2004, many people thought that this is an 'All-Time-High' and sold their stakes, thinking that they will buy again when it falls below 5721 levels.
2. Unfortunately (or fortunately), the market did not fall. On the contrary, it rallied upto 21,000 points in Jan 2008. This was where the markets fell, but still, the bottom did not touch the previous 'All-Time-High'. It fell upto 8,966 points in Mar 2009 (way above the previous high) and from there it again started rallying. (The people who had redeemed at 6000 levels, came back at 8966 levels only to enter at a level 50% higher than the level at which they redeemed).
This time it grew and surpassed the previous high of 21,000 in Feb 2014. Many people again thought that this is 'All-time-high' and sold their stakes, thinking that they will buy again when it falls.
3. Once again, they were disappointed. Because from there, the market again rallied till 41,681 points in Jan 2020 and then fell to 25,981 levels on 23rd March 2020. This bottom of 25,981 was still much higher than the top of 21,000 at which people had sold with the hope of buying back.
In all the 3 examples you see a common pattern.
A - Whenever the market surpasses a previous top, people get scared and start selling with the hope to buy when it falls.
B - The Market falls, but it still falls at a level that is way too high than the previous top. So those who sold, re-enter at a much higher price than the price which they sold.
Thus, in my opinion, any such temptation to 'time the market' should be avoided.
Sameer: Thank you so much Niraj. Many people were telling me to redeem and re-enter later. But you have shown with real examples that such attempts to 'Time the market' can actually backfire.
Niraj: Right. Also, your purpose of investments in the market is wealth creation, not quick money. If the purpose is wealth creation, then stay invested and let the experts do their job. The Fund Managers are already booking profits on your behalf so that you can create wealth.
Sameer: Thank you so much Niraj. But I am still curious to know. How do you have all this knowledge with you ? We are working in the same company and are of almost similar age. Still you have all this knowledge and not me.
Niraj: It's very simple. I have a trusted advisor with whom I am regular touch. He explains all these things coolly and calmly to me. You don't have an advisor. You keep relying on TV Experts, Newspapers, Google and random friends who themselves do not have clarity on all these things. They think they are saving advisor fees, but it is costing them more by making such mistakes. Depending on such sources creates lot of fear and anxiety in your mind.
Sameer: This is So True Niraj. Please share the details of your advisor with me. Even I would avail his services so that I remain composed like you in these situations and create wealth for myself. Today I have learned the below lessons :
- Our investment decisions should be based on our goals and not market levels.
- Trying to time the market can backfire. Stay invested for the long term.
- Don't follow the herd by listening to media advice. Have a Trusted Advisor.
We look forward to your valuable comments and feedback.
The Author Prof. Saurabh Bajaj (BE, MBA, FRM, CFGP, CIA, AFGP) is CEO with Nidhi Investments, Mumbai. His articles have a readership from 78 Countries across the Globe. He may be contacted on CEO@nidhiinvestments.com if you have any questions.
Disclaimer: The views mentioned in the article are personal opinion of the author. Mutual Fund investments are subject to market risks. Please consult your Financial Advisor before making investment decisions
CAclubindia
