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Market Timing – a Sucker’s game!

by | Nov 17, 2019 | Finance, Mutual Funds

I met a lady a few days back. She wanted some investment advice.

Whilst talking to her, she told me of an incident when the markets were high and she thought of withdrawing some of her investments in Mutual Funds, but did not. A short while later, when she needed the money, the markets had fallen considerably.

So, she asked me if I, as her Financial Advisor, would continuously monitor her MF investments and when I felt the market was on a high, withdraw some of her money and invest it in some other MF that I knew would go up shortly.

I am asked this question quite often. A couple of years back, a lady was trying to sell me a ULIP and one of her main selling points was that I could shift the funds from one type of fund to another for free. She also told me that she will tell me when to shift as she will know when the markets are going up or down! She was furious with me when I asked for an 8 x 10 photograph of her so that I can worship her every day as according to me, only God knows whether the market will go up or down the next day!!

Market Timing is a strategy that involves moving in and out of mutual funds (or stocks). Rarely a successful strategy.

Market timing goes like this – one has invested in Fund A, which is at a high point and decides to sell it thinking it will go down and invest in Fund B thinking it will go up.

We invest in a Mutual Fund (or stock) in the hope that the value will go up. It may go up or it may go down. For Market Timing to be a lucrative strategy, one has to be right twice.

• Fund A should fall. If it rises, it should not rise as much as Fund B.
• Fund B should NOT fall. It should also rise faster than Fund A.

Only when both conditions are true, will it be a beneficial strategy. This makes the strategy highly risky and almost impossible to benefit from.

Coming back to the lady, I explained to her that the markets will go up and down – that is the nature of the markets since they came into being and nobody, nobody can predict the direction regularly.
To read a previous click here:
Community and Banking – Combination for scams
The problem was that she needed the money when the markets were down. Actually, not a problem. It is a ‘situation’ and should have been taken care of in the planning stage. What happens when I need money in a hurry and the markets are down? A reasonable amount should have been invested in funds or other instruments which would not be affected by the downturn in the share markets.

Niranjan Bangera
N4 Investments

1 Comment

  1. Rajesh



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Written By: niranjan

Financially Stupid Niranjan


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