Investing Insights: Lessons from a Call with My Nephew

A few weeks ago, my nephew called me from the UK, excited about his investments in the US Market’s S&P 500 index. He’s young and has been investing for around eight to ten months, thrilled about his new investment journey. He’s eager to learn and make smart moves. But this time, he had a “tactic” in mind.

“Ravi Maama, should I take my money out before the US elections and reinvest when things settle down?”

Continuing the Conversation on Market Timing

Just last week, I spoke with someone contemplating when to start investing. His main concern? Whether to wait due to the ongoing Israel-Hamas-Iran conflict and broader Middle East tensions.

These conversations highlight a common hesitation: waiting for the “perfect” moment amidst uncertainty. How many of us have felt the urge to ‘wait it out’ when things look shaky? The truth is, uncertainty can tempt anyone to time the market.

Many investors wonder if they can time the market—jump out when things look unstable and dive back in when everything’s calm. But is it really that simple?

Why Timing the Market is a Risky Bet

It’s tempting to try avoiding losses by entering and exiting the market at the “right” times. Even Warren Buffett’s famous advice:

• Rule #1: Never lose money.
• Rule #2: Never forget Rule #1.

…might make it seem like he’s mastered market timing. But the reality is different: even Buffett cannot time the market.

During the 2008 financial crisis, Buffett’s wealth took a massive hit, dropping from $62 billion to $37 billion. Did he panic and sell? No. Instead, he continued investing, seeing the downturn as an opportunity. When the market recovered, so did his fortune.

Let’s Look Closer to Home at the Rollercoaster Year of 2020

On March 23, 2020, India’s Nifty 50 saw one of its steepest single-day drops, plunging nearly 13%. To put that in perspective, a fixed deposit typically earns around 7% over an entire year—imagine losing almost double that in just one day!

Many investors decided to jump out of the market, hoping to avoid further losses and re-enter when things looked stable. But the market quickly proved unpredictable:

• Just two days later, on March 25, the market shot up by 6.6%.
• Less than two weeks after that, on April 7, it surged another 8.76%—this was the second-best day in the Indian stock market since 2005, a reminder of how closely the market’s highs and lows can follow each other.

Summary Statistics:

• Seven of the best 10 days in the Indian stock market since 2005 occurred within two weeks of the worst 10 days.
• Four of the top 10 best days occurred during the March-April 2020 period.

This shows that the biggest gains often come right after the sharpest drops, proving that it’s nearly impossible to capture the highs without weathering the lows.

An Example from My Family

I know this all too well from a family member’s experience. At the start of 2020, the Sensex was around 42,000.

As COVID fears grew, the market began to fall. When the Sensex hit 32,000, a family member decided to exit, thinking he’d avoid the worst. But as the market dropped further to 26,000, he stayed out, waiting for the “right time” to re-enter. By the time he finally got back in, the Sensex had already climbed to 46,000.

In trying to avoid losses, he missed out on substantial growth that could have helped him reach his financial goals faster.

So, What’s the Right Approach?

Here are a few takeaways for anyone feeling the urge to outsmart the market:

• Diversify, But Don’t Panic: Spread your investments to manage risk, but avoid letting fear dictate your moves. Panic-selling often locks in losses, meaning you could miss the rebounds that typically follow downturns.
• Focus on Goals, Not Short-Term Events: Trying to predict every twist and turn in the market is exhausting and rarely productive. Instead, keep your eyes on long-term goals—whether it’s retirement, your child’s education, or buying that dream home.
• Time in the Market Beats Timing the Market: Consistently predicting market highs and lows is nearly impossible, even for experts. But staying invested through ups and downs has proven to be a successful strategy over time.

Final Thoughts

Imagine stepping off a rollercoaster every time it dips, only to miss the exhilarating highs that come after. The same goes for investing: the market’s ups and downs are part of the journey. So, the next time you feel the urge to “wait it out,” remember—fortune often favors the patient.

Stay the course, ignore the noise, and let your investments work for you over time. That’s how you’ll truly make the most of the market’s rhythm!

If my nephew’s call sparked any thoughts (or made you reconsider your next 'get-rich-quick' scheme), let’s chat! Connect with me at https://calendly.com/ravinagrani .