About seven years back, I attended one seminar on ‘Personal Finance.’ I came across a very powerful statement that keeps echoing in my mind ever since I attended that program. The statement is, “Time is your friend and Timing is your enemy in Stock Market.” You may like to read this statement till it saturates you.
Let us take the second part of the statement first. Let us discuss why timing is your enemy. No one has timed the Stock Market, since market timing is virtually impossible. The only exceptions to this rule could be great Stock Market wizards like George Soros. You can trade in the Stock Market based on the Technical Analysis of the Stock Market, if you are a disciplined trader. Let me quickly add that a very few traders have the required discipline. So trading or timing the market is not advisable for most of the people. I will be glad if at least, people trade using Technical Analysis. Many people seem to trade in the Stock Market based on the ‘hot tips’ from their cousins, brothers-in-law, friends etc. It is not surprising that majority of them lose their money and later blame the Stock Market! That is why one needs to ‘invest in the education of the market’ before investing in the market.
Now, let us turn our attention to the first part of the statement viz. ‘Time is your friend.’ It is my considered view that for most of the people, looking at the Stock Market from the long term of point of view is the best. In other words, time can be their best friend. Let us assume for a moment, you are able to get 12 % return p.a. in the stock market (which is reasonable in countries like India). Your investment in the stock market will grow 17 times in 25 years as compared to 2.7 times had you kept the money in Savings Accounts. It is a testimony to the concept of ‘Time is your friend’ through the great ‘Power of Compounding.’
Of course, you must decide the amount that is to be set aside for the Stock Market investment with your Financial Planner. Also to get an annual return of 12 % or more, you need proper guidance from the right experts. Most importantly, investing for long term requires patience, but the rewards can be awesome. So it makes tremendous sense to befriend time and utilise the power of compounding rather than trying to time the market, which is the domain of great Technical Analysts.
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