When the index touches all time high or even 52 weeks high there is always a buzz in the market. The most pertinent question arises if the market is so high then how are we going to earn money. This is the time when you get to hear the most how much money your friends, relatives, and colleagues have made in the market which brings you to the stock market only to realize that the market is at one year high.
Marketing companies are very smart to promote their product during the period of a market peak. And that is the time when you hear from people close to you about the benefits of investing in various funds. Very often you hear people making money when the market is at the peak. And this is the time when fund managing companies promote their products with marketing funds above their usual budgets.
The market is at peak is very judgemental statement since you already assume that market has reached the peak and there is no more steam left.
HOW DO YOU KNOW MARKET IS AT PEAK
Every peak whether it is 52 weeks high or all time high is broken by another peak.
Most of novice and newbie investor assume that when the market is at peak it is a wrong time to invest. Now in this process what we are really doing is trying to time the market. We are unknowingly timing the market.
Many people who are just starting on to investments they avoid investing in peaks and at the same time the peaks don’t seem to end. In an urge to not finding an opportunity, they finally invest in the mother of all peaks.
WHY DO WE FEAR INDEX PEAKS WHILE INVESTING?
Now, this is a very relative question which varies from investor to investor. The difference is with the way they are investing that is a systematic investment at a regular time interval or one-time investment. And at the same time what is their financial goal are they looking for short term goal or long term goal.
More importantly psychologically it is very challenging to buy at peak unless and until they have experienced the pain of catching a falling knife.
SHOULD INVESTOR FEAR THE PEAK?
The answer to this is Yes and No. Those who are investing to make quick money and not ready to hold it for the long term should fear. If by mistake you have invested in the peak and if you hold it for the long term then you are sure to be rewarded.
Short term investor and speculators will have a tough time surviving at the peak.
Many professional investors are fully invested even when the market index is at the peak.
SHOULD INVESTORS MOVE FORWARD?
Long-term horizon investors do not have to worry about their investment provided they have invested in an index fund or mutual fund replicating the index. We cannot comment on companies specific details as that is altogether a different topic and need much more details to be covered.
Now the movement you invest you would not know that you have invested at the peak but as the times passes and your return turns negative is when the thought of investing at the peak would arise. At the end of the year, 2008 world was not aware that it was the peak. Had you invested in the year 2008 when the index had crossed 6000 for the first time most of us did not know what is coming. But had been if you had invested you would have been positive return by the year 2011.
CAN YOU REALLY TIME THE MARKET?
This is the most difficult thing to do in the market. The reason for such a naked conclusion is that only 1% of the total traders make money. The crux is that even they do not use directional stock strategy.
The top mutual fund manager with outstanding performance consistently over the years have shown that only 5% of the people who invest in the mutual funds make money because they are disciplined investors. Other investors try to time the market to make money and they fail consistently. Whereas the mutual funds are invested most of the time and they do not try to time the market.
Market Peaks are Broken by Another Peak.
If time’s on your side, don’t time the market.
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