Does Timing Your Entry And Exit Work In The Case Of Quality Stocks?

Does timing your entry and exit work in the case of quality stocks?

- Saurabh Mukherjea

One of the most frequently asked questions that we encounter is ‘Is this the right time to invest in the stock market?’ The answer to this question needs a degree of clarity of thought around which type of stocks should be timed and for which type of stocks, this question is irrelevant.

The chart ‘Inverse correlation between returns and benefits of timing’ shows an inverse correlation between the rate of compounding of share prices with the quantum of benefit derived from a perfectly timed purchase of these equities on an ongoing basis. This analysis has been carried out on a combination of Nifty 50 constituent stocks (as they stood in 2008) and the current Marcellus’ CCP (Consistent Compounders Portfolio) portfolio constituents (some of which were also part of Nifty 50 in 2008).

For every stock analysed in this chart, we have taken 11 sets of 10-year periods of investment starting with April 1, 2000. For example, for L&T, the first 10-year period starts on April 1, 2000, and ends on March 31, 2010. The second set starts on April 1, 2001 and ends on March 31, 2011. The 11th set starts on April 1, 2011 and ends on March 31, 2021. In each of these 11 sets, ‘Mr Mortal’ and ‘Mr Gifted’ receive ₹1 crore of cash inflow into their bank accounts. Mr Mortal invests ₹1 crore annually on 1st April of each financial year, whilst Mr Gifted invests ₹1 crore annually at the 52-week low price of each financial year. XIRRs are then computed for all the sets of 10-year periods are then averaged to get Mr Gifted’s and Mr Mortal’s average XIRR comparison for each stock.

Effectively, the scatter chart is suggesting that: