If you have been waiting to invest when the market has bottomed out, let me assure you – you won’t be able to invest anywhere below the price at which you decided to start waiting in the first place.
It’s been some time since I last put pen to paper—or, more accurately, fingers to keyboard. Those of you who know me since I started this firm back in 2011, would remember my weekly blogs. Others, who came in touch along the way over the past 15 years, may be not so much.
Given everything that has been going on in the markets, I thought this would be a perfect opportunity to jump back right in to end this creative pause. Moreover, I felt the need to pacify a lot errant thoughts which I hear investors addressing on social media. It’s been a turbulent time for investors lately. If you’re feeling the pinch in your portfolio, I wouldn’t be surprised. In fact, I believe many of your portfolios are likely hit right now. The market has been falling causing concern for anyone who is invested in stocks, particularly mid and small caps.
Here’s how things stand;
Fall from peak:
Nifty – 13.35%
Nifty Midcap – 17.5%
Nifty Smallcap – 21%
But before you panic, let’s take a closer look at what’s going on—and what it means for your financial strategy moving forward.
For those of you who have their portfolios with me have been unhappy about holding anywhere between 30-50% of your holdings in fixed income, and gold. This was done largely to protect against market corrections like the one right now and to provide long term stability to your portfolio returns.
Now is your time to start allocating higher amounts to equity.
In terms of sectors where I find most value – FMCG and banking are clearly at the top of my list and that is where you should allocate fresh money (and move your existing fixed income investments).
I cannot emphasise the importance of increasing your allocation to equities at this point if you want to create alpha. Think about it, 5 months, Nifty peaked in terms of its valuations and was trading at a trailing PE Multiple of 24.4. The same Nifty (with no changes to composition), is now trading at a valuation of 20.3. Yet, the excitement has died. This is what price action does.
The problem with a majority of investors is that they follow an all in-all out approach. The very first question they will ask is – market kya lag raha hai, is it a good time to invest? This is and will always be the problem. What you should be doing at all times is to follow the approach of always being in the market and always being out of it too – asset allocation. After the current fall, my own portfolio is now 62% in equities. I plan to gradually increase this, most of it in SIP mode.
Let me also add, this is a perfect opportunity to increase your SIP amount, double it or more. If you must, then sell some of your holdings to achieve this. Stopping SIPs now will be the most portfolio destructive idea. I have spoken more about this in this interview below.
The Problem with Trying to Time the Market
There is yet another problem in addition to committing all the money at once. For many investors, the dream of buying stocks at rock-bottom prices is an alluring one. The idea of waiting for the market to “bottom out” and swooping in at the perfect moment is a scenario many envision when planning their investment strategies. However, if you’re sitting on the sidelines, waiting for the market to drop to a level where you think you’ll get the best deal, you may be setting yourself up for disappointment. The truth is, the “perfect” investment moment might never come, and by the time you realise that, the opportunity to invest at your desired price could have passed.
One of the most significant challenges in investing is trying to predict the market’s movements. Predicting the bottom, or the point at which prices will be the lowest before they rise again, is incredibly difficult. Financial markets are influenced by a complex mix of factors—economic indicators, corporate earnings, geopolitical events, and market sentiment, to name just a few. It’s impossible to consistently and accurately predict the exact moment when the market will hit its lowest point.
Even seasoned investors with years of experience struggle with this. In fact, studies show that most investors, including professionals, do not outperform the market when they try to time their entry and exit points. History has shown that trying to time the market usually results in missing out on significant gains. For example, if you were waiting for the market to bottom out during the COVID-19 pandemic crash in March 2020, you may have missed one of the most powerful recoveries in recent memory.
Missed Opportunities
By waiting for the market to hit rock-bottom, you may be missing out on opportunities that present themselves along the way. Stocks don’t move in a linear fashion, and while they may experience temporary dips, it’s also possible they can recover quickly, leaving you behind. Moreover, attempting to time the market often causes emotional decisions based on fear or greed. Fear of losses may prevent you from buying at a reasonable level, and fear of missing out (FOMO) may cause you to make rushed decisions.
Waiting for the “perfect” price can also lead to paralysis. Investors often wait until they feel absolutely certain the market has bottomed out, but by that time, the stock prices could already be on their way up. If you try to wait for the absolute lowest price, you may never pull the trigger, and you might end up investing at a higher price anyway.
The Case for Consistent Investing
Rather than waiting for the perfect moment to invest, a more effective strategy is rupee-cost averaging. You invest a fixed amount of money into a specific investment at regular intervals, regardless of the market’s movements. This approach allows you to smooth out the highs and lows of market volatility and reduce the emotional stress of trying to time the market. Over time, this approach will help you accumulate shares at different price points, lowering the average cost of your investment.
This approach is particularly helpful for long-term investors who are not concerned with short-term market fluctuations. The goal of investing should not necessarily be to catch the lowest price, but to build wealth steadily over time. Historical data shows that the stock market tends to rise over the long term, and by consistently investing, you give yourself the chance to participate in that growth.
Conclusion
Waiting for the market to bottom out before investing is a common trap that many investors fall into. The reality is, it’s almost impossible to time the market accurately, and by waiting for the perfect moment, you could miss out on long-term growth opportunities. Instead of trying to catch the absolute low, consider adopting a strategy of consistent investing and asset diversification. By doing so, you’ll be able to navigate market volatility more effectively and stay on track to achieve your financial goals.
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