Imagine two scenarios: Nifty is up almost 5% in the preceding month and is holding up in green as you watch the screen. You’ve been wanting to buy XYZ for a while as it moved from 800 to 1200. Your friends have bought it and it’s the best thing in the world which can happen to your portfolio. You’re wondering, I’ll buy it when market cools down a bit, maybe around 1100.
Scene 2- Nifty has fallen 10% from its recent highs and there’s blood on the street. FII are selling and there’s fear about the latest news on China border. XYZ has nosedived to 1000 and is down 5% for the day. Your friend hasn’t returned your call and you’re panicking because it’s going down to 500 in a week( as per the experts on CNBC).
Scene 3- five years later. You’ve almost forgotten about the first two scenes and moved on in life, happily buying and selling random stocks. XYZ suddenly moves past 5000. You tell your friends, I almost bought it at 1200!.
This is almost true, if not exact for many of us. We’re always waiting to buy when price goes up, fearful when it goes down and freeze in moments of great joy or panic. Market timing and analysis paralysis are the worst drugs to sniff on.
First things first. I’ve been asked this question multiple times- do I book profit? Do I keep cash to buy at a good dip? Short answer to both of these questions are- No. I don’t know anything about booking profits nor do I can time the market in such a way that when I buy, it’s always bottom. I buy when I have cash, period. I’m always 100% invested.
Why do I behave in such a way? Well, one thing is very simple. You can’t time the market. When the price is right( read low), market will be in such a bad shape and the news will be bad and there will be so much blood on the street that you’ll panic and never put a penny in. ( Read March-April 2020). When the news is right( October 2021), prices will be almost unbelievable. You’ll not buy while waiting endlessly for that elusive dip. So in either case, you’ll not be able to buy much, if anything at all.
Two, corrections will come in a Bull Market. It’s as true as death. However, if you wait patiently for that 20% dip, are you sure that your stock will be available 20% down too? Let’s take today’s market. Nifty is down 8% from top, while metals like Tata Steel, NALCO are down almost 30%. Tata motors is down about 10-12% while BSE is up 30% in last week. So was Nifty at 18700 cheap or expensive to buy BSE? TaMo went up 3x in one year while Nifty is up just 30% or so. So is it a good time to buy or not?
I can’t deny that having cash during a bear market is the best thing in the world. You make the biggest money during such times. However, by the very nature of law, bear markets and bad days are less likely to persist than Bull Run and good days. You may make a killing during Covid crash but if you sell once that is over and keep cash in hand to buy during the next depression, you may wait forever for one. Buffett has over $140B in cash which he didn’t deploy last year thinking market was expensive even then. Even the greatest couldn’t time it, leave aside you and I.
Thus, if the idea is to buy minority stake in a good business and hold it for long term so as to reap optimal rewards,the best time to buy is Today. You can’t be penny wise and pound foolish and say- if I had bought Eicher shares instead of Bullet in 2009, I’d have been a millionaire. Well, maybe in 2030 someone will say, if only I had bought Tata Motors shares instead of buying Nexon, I’d have bought a Range Rover today. Who know!
Life is all about Compounding! 