“Don’t Try to Buy at the Bottom or Sell at the Top” – Bernard Baruch

Bernard Mannes Baruch was a secular-Jewish American financier, investor, philanthropist, statesman, and political consultant. After his success in business, he devoted his time toward advising Presidents Woodrow and Franklin D. Roosevelt on economic matters and became a philanthropist.

Bull markets are followed by Bear markets and vice versa
Bottom fishing and top hunting always would land an investor in a difficult situation. Often an investor is planning for a perfect profit making stock. The stock has to be a fundamentally strong one to support the expected movement.
It has to be clear in mind that bull market and bear market are the natural states of any stock market progression. It is as natural as economy cycle itself. These two phases follow each other in a cyclical manner and none of it can be considered as permanent one.
But this is one mistake repeated by investors time over time. When markets are moving up that is the time when most people jump in because that is when they get confirmation of uptrend.

In theory you make money when you buy low and sell high.
This is so simple but data for past 30 years show that there is absolutely very low participation by not only retail investors but also from renowned fund houses and individual investors when it is real low of the markets and it turns highly high when the markets are about to topple from a multi year top.

Again there are signals of distribution but there are also reasons to ignore those signals.

Lets consider this data. Stock markets have rallied almost 20% since last 1 year and have produced CAGR of 14.7% over past 10 years. But most of the investors have made huge losses all these years as we saw a crash in 2008 and also recent record high of bench mark indices have left investors with awe for not grabbing the opportunity. If we look at some solid fundamental stocks then the prices talk for themselves. For eg 10 Rs face value was costing around 650 Rs in May 2004 and the same HDFC with Rs 2 face is trading today Rs 850.

Almost 5 to 5.5 times growth. There are many examples like this one. IT is a big success; the sectors like tiles and ceramics, auto, banks have also performed well.

The corrections that are evident can dent the portfolio for some time but you eventually make more money by not timing the market.

Again value buying is not about buying the stock at rock bottom price
You can find value stock at the bottom but waiting for the bottom and hunt for value makes no sense when you find a fundamentally strong company. When you find it, the company is in good shape of business. It is expected to have descent balance sheet. Business itself should be such that you are witnessing demand for the particular product or services the company is offering and should not be some May day situation with minor ups and downs in the situations.
Once spotted this kind of company which is ignored or unnoticed then that one is a value buy for you. No matter in what shape the broad level market is. If analyzed properly the companys business wont shut down overnight in stock market correction.

The investor needs to believe this kind of convections and not give up to the fear. It takes tremendous efforts and patience for that.

Generally temptation to time the market surfaces out of ego to prove yourself to others or self.
In fact stock markets are also considered to be thrilling and exciting while trading with timing in mind.
On the other hand value investing can be tedious process of analysis and observation and consistency.

So what do we do when we are not hunting for a top to sell?
Often sell decision is tougher than a buy decision. If you have a target calculated or assumed in mind then it needs to be sharpened time to time as it is very natural to not sell when you achieve it by some justification. The popular one is to think that markets are still going up then why sell now with less profit? Wait for the top to shape up then sell. So the top shapes itself, cracks from there and you still wait for your best price.

Often you tend to sell at the bottom when all the hope and wait and patience is given up and suddenly you see the turnaround everywhere. Then not believing it you might wait for confirmation and by that time you are left far behind.
At last you could neither time the top nor the bottom. But there is nothing to ashamed of it as people who say they can do it or have done perfect timing trade are obviously lying.

A few things should be kept in mind here
You cannot get 100% of any rally, if you can make 60 % of it you are a genius.
Being successful is not about making 100% winning investments. It is about letting the profits run and cutting short your losses.

Average 70% success rate is considered good enough if you are able to cut your losses short.
For buying value stocks you dont need to understand bottom phase of the market. Fundamentally strong and sound stocks will perform irrespective of market trends.