The Signal: What You Miss Out On By Not Investing At Market Peaks

A British-born American investor, economist and investor Benjamin Graham once said, “The best way to measure your investing success is not by whether you’re beating the market but by whether you’ve put in place a financial plan and a behavioral discipline that are likely to get you where you want to go.”

Timing the market is an integral part of investor bias but not so much an investing necessity. The general trend of a market is moving upward in the long run. A market’s always at its peak, and never peaky enough – every peak is a trough to looking from future, and no peak is unbreachable. Simply put, a market reaches newer peaks almost daily. Timing the market is a fallacy – entering the market before the prices rise and exiting when it’s at its peak, is a sense of perfection only few can achieve. Idle money invested in the market, at any point in time, yields return. At any given point of in time, there are only two directions in which broader capital market can head towards, up or down. The situation always remains the same even at market all-time highs.

NIFTY 50 touched all-time highs more than once every week in June ’21 and July ‘21. Theoretically, these separate data points present us with distinct danger-signals to exit the market within a span of last two months. A peak, is therefore, just another indicator of growth in markets, and is relative – the all-time high on 15^rd July ‘21 is but another historical data point today. The simplest way to extract return from a market, thus, would be to invest your money right now and stay invested for a longer term.

A basic thumb rule of successful long term investing is not to worry about timing the market but instead focus on asset allocation, disciplined investing and focus on financial goals. However, it is only natural for any investor to worry about entering in elevated levels the levels at which anxiety takes over primary emotion.

The following table illustrates how money invested from respective financial year peak would’ve fared today when markets have touched recent highs in FY22. While markets remain volatile, the returns remain resilient, despite markets suffering major blows due to a previous crisis and current Covid-19 pandemic.

Peaks are recurring – they are not exit signals for market participants. While investing in a peak can be daunting due to an indispensable following index correction, it is not a waste of money. In fact, a long term upward trend provides a good enough idea to estimate a guaranteed addition to principal investment, the quantum of which depends on intrinsic market details. But, contingencies in a short term are very difficult to respond efficiently to. Therefore, instead of singling out peaks, trust the improving fundamentals of the market and let it help you gain.

On the contrary investors might also be worried when the markets are at all time low and restrain from investing as they are waiting of the next bottom. Investors should not thus be dissuaded by market peaks, instead when investing in equity markets, having along term investment horizon and investing in disciplined and staggered manner helps to derive better returns from asset class.