When there is an uptick in the equity markets, many investors try to time the market. Few of them are sceptical about the markets and hence, adopt the ‘wait and watch’ methodology. They believe that the markets are overvalued and hence wait for a correction before entering the markets. While there are few investors, who jump on-board when the markets keep touching new highs.
However, not many investors understand that even a bull/bear run in the stock markets undergoes several phases, and it is a Herculean task to determine which phase the market is going through, how long it would stay there and how that would impact the short-term/long-term investments.
Investing in stock markets should be tyrannized by the following factors:
- Specific need / financial goals
- Quality of investments
Specific need / financial goals: If a guileless investor is looking out for a steady return without significant risks, then they should invest in fundamentally strong large-cap equities, and which will help them to grow their wealth with time. However, if an investor is looking out for more returns and is comfortable with the affiliated high risk, he may consider small-cap and mid-cap stocks which are capable of giving high returns/ In such cases, the partnering with a credible expert will help them to mitigate the risks to a large extent, as advisors can mentor them on when to exit and enter, optimal portfolio allocation and periodic portfolio rebalancing.
Quality of Investments: Stock market fluctuations can be nerve-wracking. The prices are driven by demand and supply, micro and macroeconomic indicators and investor’s sentiments. Rather than trying futile attempts to time the market, one should pay careful attention to the quality of the investments. Also, since the markets are moving up and down every single day, it doesn’t mean investors should alter their investment methodology as per every move. Risks get reduced to a notable extent when you have a long-term horizon of 3 years and above.
To encapsulate the story, investors should strongly focus on the quality of stocks and should espouse the healthy investing regimen comprising of patience, perseverance and discipline.
Warren Buffett in one of his interview stated that ‘Buy and hold’ strategy is still his best strategy and when asked about his favourite holding period, he quickly replied ‘Forever’.
“If you aren’t willing to own a stock for 10 years, do not even think about owning it for 10 minutes”
– Warren Buffett