Time, not timing, is the real edge in investing
investors undertake thorough research and build conviction in a company’s prospects, they must behave like its owners.Market volatility, relentless news flow and short-term noise should not dictate decisions. Instead, investors should stay focused on the long-term trajectory of the business.
Action is warranted only if the company’s fundamentals deteriorate; otherwise, patience is the most effective strategy.This is true for both direct stock investors as well as mutual fund investors. Mutual fund investors are often driven by the recent performance of schemes and end up moving their money from one scheme to another purely on the basis of near-term performance, which inevitably leads to poor long-term outcomes.Markets, by nature, are non-linear and shaped by the Pareto principle—the 80/20 rule.
A significant portion of wealth is created in relatively short bursts of time, while the rest of the journey demands patience. Much like business promoters, investors must stay invested through long periods of inactivity, allowing compounding to play out.
Investing, in essence, is a discipline where excessive activity is penalized and patience rewarded.For instance, a review of the Global Financial Crisis and Covid-19 downturns highlights the risk of knee-jerk, short-term reactions during market troughs. When 5-year SIP returns for the Nifty 100 TRI turned negative (Feb-09: -0.8% CAGR; Mar-20: -3.0% CAGR), panic selling was common.
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