Biggest Fallacy in the Market-2

In our last blog post, Biggest Fallacy in the Market-1, we studied the impact of Missing the Best Ten Days and the impact of skipping the Worst Ten Days.

As we have seen the results, if you miss the Best Ten Days, your portfolio returns might be reduced to 1/3 level of stay-invested returns. If we could manage to skip the worst Ten days from the market, portfolio returns may jump from a stay-invested level to 211% to 285% (Doubled to Tripled).

We are uncovering the truth behind the logic of showing the effect of missing the Ten best days on results to justify not attempting “market timing”.

Let Starting, from where we left off in the last Blog Post. Let us check the impact on the returns if we miss the Best 10 Days and the Worst 10 Days together in the market while investing. Here is the result.

Impact of Missing Both The Best and The Worst 10 Days in SENSEX

In all scenarios except for one, Returns are the same as those stay-invested, with a marginal difference.

This angle of our analysis is also showing that it does not matter whether you stay invested or try to time the market. So this also does not support the belief that “Never try to time the market”.

Now it’s time to derive The Final Conclusion.

Executing all three conditions during the research it becomes clear that it is important to capture the Best Days as well as to Skip the Worst days also.

  1. Capture the Best Days to protect your portfolio and boost your portfolio returns.
  2. Skip the Worst Days to Protect your portfolio from disruptions and generate organic growth.

Looking at all three angles of research, it is clearly defined by 2/3 majority that “One should Never Try to Time the Market” is nothing but a Fallacy in the market.

Let us see an example of the implementation of the research and check the results to see if they are in line with our research model.

We have conducted a SIP (systematic investment plan) of ₹10,000/- in two scenarios; one is a stay-invested approach, and the other is our own research model. In the research model, we have timed the market based on certain risk assessments and skipped the worst days by shifting our investment to a debt fund and reinvesting in an equity fund whenever the risk level comes to a favourable level.

The results are in line with what we have seen in our model scenario if we skip the worst days in SENSEX results. The valuations are more than tripled.

One more chart was also circulated previously to support the belief.

This chart shows the psychology of an investor at various market levels. We can use this to advise investors not to follow the trends.

Now it is clear that “Never Try to Time the Market” is just like “Fox and its Sour Grapes” Now the big question is How to Time the Market?

The key to successful investing is to stay invested in the best days and leave the market before the worst days come. If it is so simple, why is nobody talking about it? First, we should remember that Discipline is the first requirement of investing. Don’t misunderstand Discipline means regular investment only.

There are two different contradictory proverbs about speaking in the Gujarati language.

  1. બોલે તેના બોર વેચાય. A person who speaks can sell anything.
  2. ન બોલ્યામાં નવ ગુણ. There is nine virtue in not speaking.
    The first one favour speaking, and the other favour keeping mum.

When, which one applies, depends on the situation. Similarly, what is said about investment does not apply to every situation. Discipline here means following the predetermined strategies without any compromise.

The biggest mistake people make while Timing the Market is basing it on Emotions, Biases, Predictions or Assumptions, instead of basing Risk Assessments.

“In an investment, you are either managing the risk or taking the risk.”

Shailesh Sampat

This quote is suggesting that in any investment, there is always a risk involved. The investor has two options – either to manage that risk or to accept it and take it on. Managing the risk would involve taking steps to minimize potential losses, such as diversifying investments, using stop-loss orders, or doing thorough research. On the other hand, taking the risk would involve accepting the potential for losses in pursuit of potential gains, such as investing in high-risk, high-reward ventures. The quote implies that an investor can never completely eliminate risk, but they can choose how they want to approach it.

Being an aggressive investor is a good thing, but it should be in a lower-risk era, while in a higher-risk, being conservative is good advice.

Happy Investing…

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Most important note: Views expressed above are the author’s own. The objective of this Blog is to share knowledge and info about new ideas/opportunities in Mutual Funds. Neither is this trading website, an analyst website, nor an advisory website. For Mutual Fund Investment success, always do your homework, analysis, and make your own decisions.

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