Most investors think that they are smarter than the market & they want to time it & invest at down & exit at high to make the money
‘Let’s wait and time the Market.’
This is not the first time; investors have behaved like this. It is a regular phenomenon during the ups & downs of the markets.
Rewind to during the 2020 Covid market correction & the current 2021 recovery.
Shalini Kapoor, a 35-year-old HR professional, was buoyant in her initial days of investment pre-2020, leading her to expect more than normal from the market. The SENSEX was at an all-time high of 41,953 on 14th Jan 2020. She was reaping the benefits of her diligent investments and she envisioned large returns in the market climb up.
As she was building her castles in the air, covid struck and the market started coming down in March 2020. In the initial stage she saw it as an opportunity and at around 35k levels, Shalini added to her portfolio thinking ‘this market will bounce back.’
Sadly, it went down further in the span of a week to almost 30k. She had lost 25% of her capital in the run down and the panic started building. She exited some of the holdings in a wait & watch strategy. However, market went down further. The fear started building up again and between 26 to 27k, she completely exited thinking ‘this market is going to tank further.’
The idea was to exit & time to enter at a further down level to take advantage of correction. Fundamentals and earning potential were completely negated in the complete fear surrounding her.
Just the next quarter the market started its reverse trend and started going up even in the face of global fears on Covid and second round of lockdowns. Thinking this to be an anomaly, she refrained, knowing that it would drop again. At 35k, she thought ‘the market is still consolidating & will drop again to a low due to unlockdown leading to unnecessary meeting of people and spread of the pandemic.' She wanted to wait for a level where 'I have got to garner back the losses I lost in the downturn.’
Surprisingly the market reached 40k and Shalini thought it is overvalued if anything. ‘Today is not the time to be in the market. Time to exit, if I keep anything, it will only correct contributing further to my loss.’
However, the market went up to new highs first reaching 45k & then 50k. ‘I can’t believe I missed out thinking that the rally would break’. Finally at 50k, she added some portion of her money thinking ‘let’s start participating.’ FOMO (Fear Of Missing Out) played on her mind.
Luckily the market did go up further even as naysayers kept saying ‘There is going to be a huge correction’.
At 57k, Shalini was getting reassured and finally decided ‘Got to put all my capital into this now or I am going to lose out,’ & market reached its new high at 60k now.
At 60k, Shalini is more confident ‘This market will easily go to 70k in another 6 months at this rate. If I put in more money now, I will be able to pull it out then before the next drop is due’ And she is adding further.
Conclusion:
Just remember most of us bring out the Shalini Kapoor in us as the market drops and rises… trying to time the market because of greed or fear. This clearly impacts our portfolios since it leads to actions such as buying, holding, or selling our equity investments. Market volatility and emotional volatility go hand in hand. The goal and objective of equity investments is wealth creation over a long term, and this will happen only if we control our emotions during times of crisis as well as euphoria.
It is important to stick to your financial plan and asset allocation and avoid allowing emotions like greed and fear come in the way for financial success. To be truly successful, your financial planner should be able to calm you in turbulent times and reign you in during the euphoria. Don’t let greed or fear get the better of you.
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