On the peak, yet long way to go!!

Investing, whether you call it an Art or Science or both, can be compared with many things viz A marathon, a roller-coaster, planting a tree etc. The list goes on and on. One such is to compare investing with mountaineering.

Investing and mountaineering

Just like mountaineering, investing requires lots of patience and the journey could be full of constantly changing conditions. Interestingly though, while reaching the peak of a mountain can be a fulfilling experience, equity market peaks can evoke mixed reactions.

The curious case of ‘Market Peaks’

While witnessing one’s investments rise in value owing to surge in equity markets can give a sense of euphoria; for many investors, market peaks and the accompanying expensiveness in markets can create fear of an impending crash. With NIFTY 50 scaling newer highs recently, one can encounter two set of investors – those who are elated due to recent returns on their equity investment and those who are sceptical about market valuations. This isn’t a new phenomenon and accompanies almost every market rally. We had covered this in previous editions of ‘Weekend Bytes’ viz.

“Monsoon Highs: Should Investors Embrace All-Time Market Peaks?” and “Always a good time to start an SIP” which showed the importance of time in the market vs timing the market. Do give them a read, if equity market scaling new highs is making you jittery.

Markets Peaks - For long-term investors It could be much ado about nothing.

>While Market peaks do make for good headlines, they aren’t as uncommon as one would think. Over the past 3 decades (Since 1993), NIFTY 50 has witnessed ~450 peaks! In fact, in spite of all the geo-political uncertainty, global headwinds, inflation and rate hike cycle, NIFTY 50 created 20 new peaks this year.

>For a long-term investor, investing at market peaks may not necessarily be a futile endevaour. Let’s consider 283 All-time highs of NIFTY 50 from June-2005 and December-2018^. What would the investment experience have been had one invested in Large Caps (NIFTY 50), Mid-Caps (NIFTY Mid-Cap 150) and Small Caps (NIFTY Small Cap 250) on any of these 283 days and stayed invested for the next 5 years?

Starting an SIP and more importantly persisting with it is more important than when you start it. Whether one starts an SIP at market peak or bottom doesn’t matter as long as one starts and persists with SIP. In fact, delaying the start of a SIP by waiting for the markets to correct can be significantly detrimental.

To conclude, Market Peaks or All-time highs are events with no material bearing on investment outcome of long-term investors. Unlike mountaineering, where reaching the peak can only be followed by the descent; in the world of equity investing, a market peak is not the end of the journey and for a long-term investor, investing journey could be marked by numerous such peaks or All-time highs.

The information contained in this document is for general purposes only and not an investment advice. Readers should seek professional advice before taking any investment related decisions.

MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY.