Market rally shows futility of trying to time movement to maximise yield
Stock prices have seen a quick and sudden spurt in over the last two weeks. However, this long-awaited and long-predicted rally has not brought any joy to the kinds of investors who were in the business of waiting for such rallies.india Updated: Sep 19, 2010 22:40 IST
Stock prices have seen a quick and sudden spurt in over the last two weeks. However, this long-awaited and long-predicted rally has not brought any joy to the kinds of investors who were in the business of waiting for such rallies. If anything, this rally in the stock markets has been a near-perfect demonstration the futility of trying to time markets in order to maximise returns.
Brokers and analysts who make it their business to advise short-term traders have spent the better part of last two weeks explaining why, despite spending close to two years waiting for this particular event, it actually came as a surprise to all of them.
Over the last several years, every major market move in the stock markets has caught short-term traders by surprise. Those who have tried to time the markets have scrambled to catch up with events and have in general either faced frequent periods of lost opportunities or of losses. The last two weeks are yet another episode in the same continuing show.
More importantly, these last two weeks have also been a perfect demonstration of how the conveyor-belt style of investing exemplified by mutual fund SIPs can easily take in its stride the worst gyrations that the stock markets can throw up. About the only investors who have benefited perfectly from this rally have been those who have kept investing steadily, without paying any attention to which way the short-term movement of the market has actually been.
SIP investments in an equity fund with identical performance to the Nifty over the last three years would have given returns of about 21 per cent per annum. This is a remarkable achievement in a period when the stock markets saw the deepest and most frightening crash that a generation of investors had seen.
Going forward this offers a valuable lesson. Stock market analysts seem equally divided in their opinion on what exactly does the rally mean, going forward. Some are cautious, and think that the markets have run ahead of themselves, while others hail this as the beginning of a huge new bull-run.
Who is right?
If you are an individual investor who is interested in reaping the rewards of equity for your long-term savings, the right answer is that it doesn’t matter. Stay away from all discussions about where the market is going. Just keep investing steadily—nothing else matters.