By analyzing price charts and using a bit of hindsight, an investor can very easily develop a ‘timing the market’ investment strategy. But that strategy will mostly be a subjective perspective of the market and doesn’t guarantee any investment success in real market conditions.

 

Exiting the market right before any pandemic or global economic shock and entering the market during a recovery phase is nearly an impossible venture. There are various reasons for it. One of the primary reasons is the heavy flow of information from the market is tricky to confuse the investor.

 

Our views on this topic are mentioned below.

 

1. It isn’t easy to perfectly time the market. Any positive development like interest rate cuts or stimulus packages to boost the economy during a pandemic may bring a rapid recovery in the market.

 

2. Market downturns and recovery phases are not linear processes. Amid corrections and crashes, stock markets all over the globe will be in a growth trajectory in the long term. It may confuse investors, but they should realize that growth happens in markets amid losses like success occurs in life in the middle of numerous failures.

 

The following charts will give you an overview of stock market crashes and recovery phases:

 

Stock market volatility can be observed in the following charts:

 

2008 sub-prime crisis

 

 

 

Similarly, following was volatility in:

 

EURO 2011 crisis – 28% decline

Chinese crash 2015 – 23% decline

 

 

3. The stock market recovery happens rapidly. A significant part of the recovery phase occurs in the first three months. The unpredictable volatility during bull and bear markets makes market participation an emotionally challenging one and a delayed entry an expensive one.

 

The charts below show the recovery phases in the markets:

 

 

4. The endless flood of positive and negative market news and markets’ swift reaction results in higher volatility during bull and bear runs.

 

Mentioned below is an example of both positive and negative news:

Positive News

 

• • Corporate earnings have increased significantly in the past, and it is expected to be improving in 2022.

 

• The overvalued market is slightly corrected, and currently, it is fair-priced.

 

Negative News

 

• • The new yet deadlier variant of Corona Virus, Omicron, has spread rapidly across the globe.

 

• The rising interest rate is sucking out the liquidity from the markets.

 

5. Our keen observation of peers and other market participants revealed that no Asset Management Companies (AMC) like Berkshire Hathaway and Motilal Oswal or high-profile investors like Rakesh Jhunjhunwala has opted for such strategy now or in the past. They haven’t recommended exiting from markets at the onset of the CoVID-19 pandemic. But on the other hand, they were buying at every dip. They have learned from the past that markets will eventually recover and remain bullish in the long term.

 

6. Novice investors shouldn’t fall prey to fraudulent advisors claiming that they could enter the market at the bottom and exit at the top. Always keep away from swindlers who offer magical investment solutions.

 

The following are a few time-tested investment strategies:

 

• Hold the existing equity position.

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• Use corrections to add to your existing position.

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• Do not try bottom fishing.

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• Equity investments are risky. So, make the investments with your savings or the money you don’t need for the next five years or more.

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Best Regards

 
Akhil Bhardwaj

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Alpha Research