Always there is a lot of talk about how the market is going to perform in near future and what action to be taken to time the market. We can listen to a lot of debates on the business channels of television and can read more such articles in newspapers where experts after experts are presenting their vision and predictions about forthcoming doomsdays.
A normal investor panics from these types of deliberations and questions his/her advisor about not taking preventive actions before such an event occurs.
The perverse and grotesque reality of all this is that what happens in the next 12 months are rarely matters in the long term. I know it sounds counter-intuitive, but that’s the truth.
This market timing and stock selection cult that has evolved is something akin to a bunch of schoolboys feverishly combing the playground to see who can find the largest and. Even if you end up finding the largest ant on the planet, it’s still an insect, and insects are small.
The dominant factor that determines your investment results is not what mutual fund you buy, nor is it when you buy it. The dominant factor is your own investor behaviour.
Notice I didn’t say investment behaviour. What I said was that the dominant factor that determines your investment results is your own investor behaviour. Investor behaviour refers to what you do when prices get cheap. It refers to what you do when prices get expensive. It refers to how much you save. It’s about making decisions that are consistent with your financial objectives. And, make no mistake, investor behaviour is more important than all of the other factors put together.
Sure, market timing and investment selection have a role. But these things account for roughly 5 per cent of your real-life returns. Frankly, if you get the 95 per cent right, the residual 5 per cent can look after itself. And yet it’s the 5 per cent that gets all the attention.