Waiting for right time

I recently met someone at a family gathering. After exchanging pleasantries, he wanted to know more about what I do. He seemed to be keenly tracking the economy and markets, and had some very interesting insights as well. The way he spoke, I presumed he would be a nuanced investor.

At this point, in a very solemn tone, he mentioned he was waiting for the right time to invest and trotted out a laundry list of issues preventing him from entering the market. All these facts were accurate, but that's when I asked myself: "When was the last time there were no perceived or real risk?"

"Never."

Exactly, something or the other has always plagued the world.

I asked him if he invested when the markets corrected sharply after COVID. He was fearful then as well and started to invest after the markets had recovered almost 50 per cent.

He redeemed most of his investments again when the Fed started to raise interest rates, fearing an exodus from FIIs (foreign investors). He was right in predicting a sell call by a few FIIs. However, the gentleman could not get an opportune time to re-enter the market when the FIIs became net investors again.

Peter Lynch managed Fidelity Magellen Fund for 13 years. He delivered a staggering return of 29 per cent. Unfortunately, according to Fidelity, the average investor lost money during his time. Another research corroborates the fact that scheme returns differ from investor returns. According to Dalbar Research on Investor Behaviour, an average equity investor underperformed the S&P 500 by 1.5 per cent CAGR for 20 years.

Return gap
During my AMC days, there would be instances when investors would doubt the returns mentioned in the factsheet, as their returns were almost always lower.

Many studies prove that the investor return deteriorates by a large margin if they miss a few 'best' days. For instance, if we study the Sensex returns from January 1, 1990, to March 31, 2022, it grew 13.71 per cent. However, its returns would drop to a measly 4.5 per cent if an investor missed just the 40 'best' days. Imagine the penalty of missing just 40 days over 32 years. Ouch!

I mentioned a few of these numbers to the gentleman at the gathering. I told him most investors waste their energy debating on the 'right' time to invest, and subsequently worry about the 'right' time to exit.

For a long-term investor, time in the market is far better than timing the market. And if one is worried about the valuation, opt for staggered investment over time. As Nick Murrey states, "The dominant determinant of real-life, long-term investment outcomes is not the investment performance; it's investor behaviour."

If you have also met someone waiting for the 'right' time to invest, keep this article handy.

Shyamali has been navigating the asset management world for over 20 years, working with everyone from the seasoned super wealthy to absolute beginners. She has a knack for understanding the human side of investing and empathising with investors, something that shines through in her writing. She can be reached at [email protected]