PERSONALISED INVESTMENT MANAGERS

Can I Time my Investments in Equity Markets?

26 October, 2021


          
            Can I Time my Investments in Equity Markets?

Peter Lynch is an American investor, mutual fund manager, and philanthropist. As the manager of the Magellan Fund at Fidelity Investments between 1977 and 1990, Lynch averaged a 29.2% annual return, consistently more than double the S&P 500 stock market index and making it the best-performing mutual fund in the world. During his 13-year tenure, assets under management increased from US$18 million to $14 billion.

A strong proponent of value investing, Lynch wrote and co-authored a number of books and papers on investing strategies, including “One Up on Wall Street”. He coined a number of well-known mantras of modern individual investing. Lynch has been described as a "legend" by the financial media for his performance record. Today’s article is going to focus on 3 of his key mantras.

Now let’s look at the performance of the Sensex within these’ return bands’ and how many times did specific performance events occur.

The First – Stop Trying to Anticipate the Market Vagaries


“Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves”

Peter Lynch


It is almost impossible to 'time' the market. Let’s analyse market data a bit more to explain this.

Below is a table of the Sensex performance over the past 30 years. We have looked at daily returns starting at <0% and progressively moving up with returns of 0% - 5%’ for the day.

The total number of trading sessions was 7456 trading days over these 30 years i.e. from 1st Jan-1991 to 28th Sep-2021

Now let’s look at the performance of the Sensex within these ‘return bands’ and how many times did each of the specific ‘performance’ events occur.


Sensex Performance Analysis

Over 30 years / 7456 Trading Sessions.

Sensex - Daily Performance Bands No of Occurrences out of 7456 Trading Days  % of Occurrence
Less than 0% 3489 46.8%
0% to 1% 2382 31.9%
1% to 2% 1017 13.6%
2% to 3% 348 4.7%
3% to 4% 123 1.6%
4% to 5% 41 0.5%
More than 5% 57 0.8%

In summary, this is what happened to SENSEX Returns
Over the past 30 years!
  • 57 days out of 7456 trading days – Sensex went up by more than 5%
  • 41 days out of 7456 trading days – Sensex went up between 4% to 5%
  • 123 days out of 7456 trading days – Sensex went up by more than 3% to 4%

It is indeed impossible to anticipate or predict such isolated events and invest accordingly.

In summary, this is what happened to SENSEX Returns
Over the past 30 years!
  • 57 days out of 7456 trading days – Sensex went up by more than 5%
  • 41 days out of 7456 trading days – Sensex went up between 4% to 5%
  • 123 days out of 7456 trading days – Sensex went up by more than 3% to 4%

It is indeed impossible to anticipate or predict such isolated events and invest accordingly.


Over the past 30 years, The BEST investor returns days (>3%) constituted 221 days out of 7456 trading days i.e. <3% of the time. And the punters are trying to ‘time’ this small window of opportunity?

MIMI PARTHA SARATHY
Managing Director,
Sinhasi Consultants Pvt. Ltd.


I can't recall ever once having seen the name of a market timer on Forbes' annual list of the richest people in the world. If it were truly possible to predict corrections, you'd think somebody would have made billions by doing it.

Peter Lynch

TIME
in the Market

  • Over the past 30 years, the SENSEX performance is 58.7x times or14.22% XIRR!
  • Timing of both up and down, is close to impossible. There is absolutely nothing certain about it.
  • The best solution for financial success is to remain disciplined and continue your investments as per your financial plan and asset allocation.

TIMING
the Markets

  • What if you missed these 57 days? Remove the 57 best performing days, the SENSEX performance for the same period will be just 1.36 times or 0.51% XIRR only.
  • Timing of both up and down, is close to impossible. There is absolutely nothing certain about it.
  • Trying to ‘TIME’ the market may cause huge losses and loss of investment opportunity.

Refrain from bias clouding investor behaviour- ‘High return days’ come only during a bull market phase. A 30-year study of the 'Best Days' in terms of returns shows that more than 50% of the best 30 days were during a bear market phase.

"Although it's easy to forget sometimes, a share is not a lottery ticket. It's part ownership of a business."

- Peter Lynch


Conclusion

Please remember investing is mostly backing quality businesses run by quality managements that offer a runway for strong cash flow growth, earnings potential, and long-term prospects. Buying them at a “reasonable” price with an eye on the returns is important. Stay invested, stay disciplined and secure your returns.

Most good advisors prepare a sound long term holistic financial plan for you based on your risk profile, define your financial goals along with you… do an asset allocation (with contingency plans built in) with you. They are in the best objective position to help you navigate the markets.

Reach out to us

To understand how we can help you maximize your investment goals or leave a comment below on your thoughts.

              


Bibliography

How does Financial planning work? | A legend’s words to the layman investor| Top 5 Investment Lessons From Peter Lynch, ETMONEY | Peter Lynch on Common Investor Mistakes, NOVEL INVESTOR | How you can benefit from legendary investor Peter Lynch's strategy, BUSINESS TODAY


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