Consistency Beats Timing: A 24-Year Journey in the Indian Stock Market

December 5, 2023

In the unpredictable world of the stock market, where prices fluctuate based on an array of factors, the debate between market timing and consistent investing has been ongoing for decades. Many investors believe that successful timing of the market is the key to substantial gains. However, I’m going to highlight today the power of consistency, exemplified through a 24-year data analysis of an investor who diligently invested INR 50,000 every year in the Nifty 50 index, even at its highest levels.

The Unlucky Investor – Invested at Market Highs

Has it happened with you too that the stock you buy goes down right after? Hard luck but let’s just say that our investor was the most-unlucky one in the world and he always happened to put his money in the Nifty benchmark at the highest level of the year. No wonder he always saw his investment going down right after.

This poor soul’s investment journey began in January 1999 and went on until December 2022 as he kept investing INR 50,000 every year at highest levels.

While this may seem like an ill-fated strategy at first glance, the data reveals a surprising outcome – one that demonstrates the strength of consistent, disciplined investing.

Nifty 50: A Rollercoaster Ride

Understanding Nifty 50

Nifty 50 is the flagship index of the National Stock Exchange of India, representing the performance of the top 50 companies across various sectors. It’s a widely used benchmark for Indian equity markets.

The Rollercoaster of Market Highs

Over the 24-year period from 1999 to 2022, the Nifty 50 experienced numerous peaks and troughs. From the Dotcom bubble burst in the early 2000s to the global financial crisis in 2008 and the unprecedented events of 2020, the market saw its fair share of ups and downs. Never easy to compress and distil a journey of decades into a few lines!

Data Analysis: Consistency Prevails

Investment Amount Over 24 Years

Our investor committed INR 50,000 annually, while always being terrible with his timing skills. This consistency resulted in a cumulative investment of INR 12,00,000 over the entire period. Remarkably, our investor never learnt anything over the 24 years from his past mistakes and consistently invested the lumpsum amount at the highest levels.

Show me the Returns

Given the absurdity involved in investing timelines by our investor, you might think that he did poorly in terms of returns. Well, time for the results!

The average annual return on this investment over the 24-year period was 11.07%. This means that despite consistently investing at the market’s highs, the investor generated double-digit returns. Depending on where you are in your financial journey, this could be anywhere between decent and impressive but certainly not bad. Here are the numbers.

How on earth is this possible? Well, the short answer is consistency. Given that the investor was so dumb with the timing, he was surely dumb enough not to do anything else and just come up with the investment instalment next year, link clockwork.

Comparison with Fixed Deposits

Outperformance All the Way

To put the returns in perspective, let’s compare them to a more traditional investment – bank fixed deposits. Over the same period, fixed deposits in India were offering relatively conservative returns, often hovering around 6-8%.

With a Wide Margin

Our investor, with an average annual return of 11.07%, significantly outperformed fixed deposits, showcasing the potential of consistent stock market investing even when seemingly entering at unfavorable points.

Lessons Learned: Consistency Over Timing

The Futility of Market Timing

Attempting to time the market perfectly is a daunting task. Even seasoned professionals struggle to consistently predict market highs and lows. Our investor’s journey illustrates the futility of trying to outsmart the market through timing.

Power of Rupee Cost Averaging

The strategy employed by our investor is a classic example of rupee cost averaging. By investing a fixed amount regularly, the investor bought more units when prices were lower and fewer units when prices were higher. Over time, this averaged out the purchase price, leading to a profitable outcome.

Emotional Resilience

Consistent investing also promotes emotional resilience. Market fluctuations can induce panic or excitement, leading investors to make impulsive decisions. The disciplined approach of our investor, irrespective of market conditions, helped avoid emotional pitfalls.

Conclusion – Systems Save the Day

The 24-year journey of our investor in the Indian stock market serves as a powerful testament to the adage that consistency beats timing. By investing a fixed amount annually, even at the highest levels of the Nifty 50, he achieved an average annual return of 11.07%, outperforming traditional fixed deposits by a wide margin. This is not just impressive from the standpoint of bank fixed deposits but also beats most mutual funds over this time and that too with minimal expenses.

Can you imagine yourself being so wrong about the markets? Most probably not because you are smarter than our poor investor. On the flip side, since you are smarter, you might want to do away with this dumb way of investing. Chances are especially high that you might have done it at a particularly bad time when the portfolio was under drawdown. It could be either Global Financial Crises, Demonetization, Covid-19 or Russia-Ukrane war!

This story reinforces the importance of a long-term perspective and disciplined investing. While market timing may be tempting, the unpredictable nature of the market makes it a risky endeavor. Consistency, on the other hand, harnesses the power of time, compounding, and rupee cost averaging, leading to a more robust and resilient investment strategy. So, the next time you contemplate timing the market, remember the enduring success of the investor who chose consistency over luck.