The false choice of market timing vs value hunting

Some time back, I received an email from a regular reader that made me think through some beliefs I had always expressed about equity investments. My friend pointed out a glaring contradiction in the investment wisdom I've dished out over the years. "You always say that we should never time the market. You also say that we should not buy overvalued stocks. However, aren't we timing the market when we wait for valuations to become attractive? Isn't it the same thing?"

I truly like getting questions like these. They show that someone is thinking deeply about what they are supposed to be doing. They force us to examine our assumptions and dig into the true nature of investment strategy. After three decades of investing and writing about it, I've learned that what appears contradictory on the surface often reveals a more sophisticated and useful truth underneath.

So, let's examine this supposed paradox. When I tell people not to time the market, I'm warning against what one might call 'market astrology' - the tempting belief that we can predict whether prices will be up or down next week or next month or that we can catch the exact top or bottom of a market move and thereby mint crores. I've seen too many investors lose money (or lose opportunities) in the belief that this could be done.

But here's what investors should think about: being valuation-conscious when picking individual stocks is an entirely different issue. Think of it this way: I'm not claiming I can predict when a particular stock will hit its next peak or bottom, but I can look at its fundamentals, its P/E, and its growth prospects and make a reasoned judgement about whether its current price makes sense. There's no contradiction here at all.

I'm going to discuss the psychology behind these two concepts because that's where many investors make their mistakes. When we try to time the market, we often act on emotion - fear of missing out when prices are rising or panic when they're falling. This is a reactive mindset, where our emotions about market movements override our rational judgement. The daily price sheet becomes a source of stress, and every news headline demands immediate action.

In contrast, valuation-based investing requires a completely different psychological attitude. Here, we're acting more like a business owner (what an equity investor is), evaluating a potential acquisition and carefully assessing the target company's finances, market position, and growth prospects before deciding on a fair price. The focus shifts from "When will prices move?" to "What is this worth?" This mindset is more analytical and less emotional, giving us a sense of control based on tangible metrics rather than market prophecies. You're not trying to outsmart other investors - you're simply refusing to overpay for what you're buying. It's the difference between gambling and shopping wisely.

So yes, while at a superficial level, the two concepts looked like a contradiction to my friend, the reality is quite the opposite. Let's look at the concrete example of what we see in our markets. Many investors I speak with are obsessing over whether this 5 per cent decline from recent highs marks the big correction everyone has been warning about. They're constantly examining charts, following 'experts' on social media, and figuring out if this is 'the top' they've been waiting for. Some have been sitting on cash for months, waiting for this moment. That's market timing, and it's a futile exercise.

Meanwhile, value-conscious investors are doing something quite different - they're methodically examining individual companies to discover what has become good value. My team at Value Research Stock Advisor is burning the midnight oil on that. They're not trying to predict if the Sensex will fall another 5 per cent or bounce back; they're simply identifying good businesses that might now be selling at sensible valuations.

The investor focused on timing would be paralysed, trying to predict the market's next move. Meanwhile, the valuation-conscious investor is finding opportunities company by company, regardless of what the Sensex might do next week or month.

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