Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Are you trying to time the markets? - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Jun 18, 2004

    Are you trying to time the markets?

    One of the most popular myths in stock market investing is that in order to generate superior returns over time, one should be able to predict the stock market movements. In other words, one should invest when the markets are at their lows and sell when they are at peak. However, nothing could be further from the truth. It is almost impossible to gauge stock market movements on a consistent basis. Even the best of investors, armed with the most sophisticated tools, have failed to do so. Therefore it comes as no surprise when an ordinary retail investor tries to take advantage of the market movements but more often than not, ends up losing his hard earned money.

    (FY99-FY04) Earnings growth ROI*
    Reliance 24.8% 19.0%
    SBI 22.5% 13.9%
    Hero Honda 43.1% 13.3%
    Infosys 56.4% 13.3%
    Tata Motors 52.7% 5.0%
    Ranbaxy 30.3% 7.9%

    * adjusted for dividend and stock splits

    In the table above, we have made an attempt to justify our stand of investing in a company with strong fundamentals and attractive valuations irrespective of where the markets are poised. To make our case stronger, we have chosen the day of investment as the day on which the Sensex was ruling at levels similar to what is being witnessed currently i.e. close to the 4900 mark during the month of August in the Year 1999, thus resulting in an investment horizon of around 5 years.

    As is evident from the table above, while the Sensex has hardly budged (point-to-point) for an investor who bought then and sold now, despite two peaks of over 6,000 levels, there were certain stocks whose returns on a CAGR basis far exceeded than that given by any competing financial instrument. These were the companies that logged in healthy growth in their earnings year after year on a consistent basis. Quite unlike their peers, they moved ahead in terms of profitability and by way of either their strong management skills and/or leadership positions in their respective industries, and rewarded shareholders for being persistent.

    While entry price points are not that important at the time of investing in fundamentally stronger companies, a check between a valuation metric such as the P/E and the future growth prospects of the company is a must. What we are trying to say is every business has a value and hence an investor should steer clear of companies whose valuations have run way ahead of their earnings potential.

    It should also be remembered that this strategy is not the be all and end all of stock market investing and there have been certain companies like HLL and ITC, which have given negative returns over the same time span despite their strong fundamentals. We believe that no one can be right all the time. The important thing is to be more right than wrong!

  • Read Mr. Prashant Jain's (Head, Equities- HDFC Mutual fund) views on the stock markets and timing the stock markets.



    Equitymaster requests your view! Post a comment on "Are you trying to time the markets?". Click here!


    More Views on News

    How to Ride Alongside India's Best Fund Managers (The 5 Minute Wrapup)

    Jun 10, 2017

    Forty Indian investing gurus, as worthy of imitation as the legendary Peter Lynch, can help you get rich in the stock market.

    How To Read Your Mutual Fund Account Statement Correctly (Outside View)

    Aug 17, 2017

    PersonalFN simplifies the mutual fund account statement for you.

    This Small Cap Can Drive Chinese Players Out of India (and Make a Fortune in the Process) (The 5 Minute Wrapup)

    Aug 17, 2017

    A small-cap Indian company with high-return potential and blue-chip-like stability is set to supplant the Chinese players in this niche segment.

    Which Gods Will Bring Down the US Empire? (Vivek Kaul's Diary)

    Aug 17, 2017

    Mr Trump is in the White House and the gods are in their heavens; what's not to like?

    Will They Haul Off Trump's Statue, Too? (Vivek Kaul's Diary)

    Aug 16, 2017

    All across the country, the old gods become devils. New, gluten-free gods take their places...

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms


    Aug 18, 2017 11:18 AM