Downside of Timing The Stock Market - Chart Of The Day 13 December 2018 - Equitymaster
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Downside of Timing The Stock Market
Dec 13, 2018


A lot of people in the market are playing the prediction game ahead of the elections these days.

A common theme is to sit on cash to escape the volatility ahead of the upcoming elections. In case there is an unexpected event, you can then get in post the correction.

But does timing the market work?

Not really, if you see the market performance in the year of the past three national elections (2004,2009 and 2014).

Remember we had all three scenarios in these elections i.e.

  1. An unexpected change in power in 2004
  2. Re-election of the incumbent government in 2009 and
  3. An expected change in power in 2014.

How did the market react in these different scenarios?

Looking at the returns, staying out of the market to escape volatility would have been a costly affair every time.

The market gave above average returns in all three of those years.

This does not mean one can expect the same in the coming year.

But there's one thing I know for sure. Predicting short-term directions of the market is a futile and many a times a costly affair.

That's why we believe in picking safe stocks when they are actually 'safe' i.e. during such times of high pessimism and uncertainty.

Data Source: Ace Equity

This Chart Of The Day was published in The 5 Minute WrapUp - Seven Election-Proof Stocks to Buy Now

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