I think whoever said – spend time in the market instead of timing the stock market, must not have started investing at the peak of the year 2008.

I for one have always agreed that if you buy good stocks and hold on to them for a long period of time, you will make a lot of money. Blue chip stocks whose businesses improve from cycle to cycle invariably generate higher than the risk free bank rate (i.e. 8-9%) over a longer period of time. If you look at HDFC, Colgate, RIL and other such well established companies, they have all generated a CAGR in excess of 18% (double the bank rate).

Why would you try to Time the stock market?

Irrespective of what people say and believe in, they are not happy with an 18% annual return over a period of time, especially when they see people earning far higher returns in a much shorter span of time, trading in the same stock market.

Should you try timing the stock market?

Personally, I have my investments in many different baskets, I try to regularly buy and sell in some of these baskets while I have completely locked some of them. To that extent, I can safely say that I do what I preach.

Think of this as a garden. Different trees and flowers are planted to serve a different purpose. You may uproot tiny seasonal flowers and replace them with others every few months, but do you uproot mango trees every year? Conceptually, things remain the same in stock markets. However, the temptation to trade in stocks is much stronger. This is where self discipline plays a very important role. Just to be sure, I have demat accounts at 2 different places. I use one of them for a regular monthly investing and the other for trading in the short to medium term. For example, the 10 stocks you will find here – Buy and hold for long term, are like post dated checks. They will deliver well over the desired 18% return for many years.

On the other hand, stocks in our trading portfolio – best stocks to trade, may or may not come from the above basket of long term stocks. More than being fundamentally sound or weak, the focus here is on timing the stock market based on various factors.

DISCIPLINE: How to not trade in your Investing Portfolio?

One of the most difficult things to do is to split your money into different portfolios. Then trade in one and not trade in the other.

For example, I have Larsen & Toubro (L&T) in my long term investing portfolio. From time to time, I trade in this stock too. Every time I sell L&T in my trading portfolio, it begs the question – why hold the same anywhere? It’s stupid to sell 50 shares of L&T because you think it will go down and not sell the other 50, because the belong to a different basket??

I can only tell you what has helped me tremendously over the years.

MEDITATION: For years I tried to practice meditation but could never train my mind. I could never free it from peripheral thoughts or reach any sort of heightened consciousness. Then someone told me that my very idea of meditation is flawed. It isn’t about not thinking. Of course you will have thoughts, when you are meditating. The attempt should be to ensure that you have nothing to do with your thoughts. Let your thoughts come and leave your mind, let them not bother you.

Meditation is about you vs. your mind. They are both independent.

The Rule of timing: Right time to buy / sell

The only rule is to buy low and sell high – and then repeat. Harder to practice than to preach.

I had written a post about this sometime back. The gist of that post was that you need not be precisely right about buying at the bottom and selling at the top. All you need to do is to have an imaginary median value for the stock you like to trade in. So long as you manage to buy ANYWHERE below the median value line and are able to sell ANYWHERE above it, you will accumulate free shares and make profit. You can read that full post here – Risk free stock investing rule.

One final point – there are many silly rules that I have heard on timing the market, these include:

  • Sell when the stock rises 15% from your purchase price, buy it back when it is available 12% below your selling price.
  • On 10 occasions every year the market falls more than 2% in a single trading session. Buy on these days and sell within a week after you buy.
  • I have a brilliant technical charting/ analysis software which tells me what will happen in a week/ month from now, I buy and sell on that basis.

If you are looking for similar rules on timing and find them anywhere, or if you have one of your own, please do let me know. I would love to hear about it all.

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