Last Updated on October 8, 2023 at 5:17 pm
In the second part of the buying “low” vs buying “high” study, I consider return differences for identical investment amounts. And guess what? The results are most surprising!
For those who have not read the first part, I request that you head over to Equity: Buying “High” vs Buying “Low” and then come back.
Some definitions:
1 Buying low (low-SIP): Buying when index (S&P 500 and Nifty total returns indices) has a value lower than its ten-month average. This is checked only once a month – on the first.
Join 32,000+ readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email! (Link takes you to our email sign-up form)
🔥Enjoy massive discounts on our robo-advisory tool & courses! 🔥
2 Buying high (high-SIP): Buying when the index has a value higher than its ten-month average when checked on the first of the month.
3 Buying systematically (normal SIP): Buy on the first of each month.
The investment amounts in the three methods have been kept similar. For example, consider a monthly SIP of Rs. 1000. After eight months the total investment would be Rs. 8000.
If I want to buy low and found that the index went below the 10-month average for the first time in the 9th month, then I will invest the Rs. 8000 saved up + Rs. 1000 = Rs. 9000 in one shot. This ensures all three methods have the same capital.
In the first part, I had not done this. There I found the difference in return between buying low and buying high was quite small. Now I perform this study for every possible 3Y, 5Y, 7Y 10Y, 15Y, 20Y and 25Y periods between
Jan 1900 to Sep 2016 for S & P 500 TRI and
Apr 2000 to Nov 2016 for Nifty TRI.
Two probabilities are considered:
1. The probability of a normal SIP beating a low-SIP.
2. The probability of high-SIP beating a low-SIP.
Results for S & P 500 Total Returns Index
Here 1347 periods implies that the number of 3Y SIP durations were tested between 1900 and 2016.
Results for Nifty Total Returns Index
Compare the very low number of periods available here. Our market is a baby and I am interested in reading too much into these numbers.
For the 7Y period, if you consider the excess return obtained when buying-low did better than a normal-SIP and such excess returns were obtained:
It was only for investments started just after a big crash (dot-com and 2008) and even here the difference is only about ~ 1% or so.
I think the data speaks for itself and no commentary is required. Happy to let my dull and boring SIPs continue
Will say this much: It is one thing to say I will invest on dips or invest during crashes etc. because it appeals to me, and quite another to insist that buying low is the best strategy.
Related Reading
Relevance of the Nifty PE for the long-term investor
Misconceptions about the Nifty PE
Is PB-based investing better than PE-based investing?
Check out Reviews for You Can Be Rich Too
Ten reviews are available for our new book, You Can be Rich with Goal-based investing. Here is a sample:
The only book you need to get your hands on if you are lost in the financial jungle. Do it immediately. Simple, practical, crisp and precise.
The best gift that a young earner can receive.Kudos to the authors. – Karthik.
Check out the other reviews and buy now via Amazon.in for Rs. 399. Or via Infibeam for just Rs. 307. Jeethendra tells me infibeam delivers faster.
The book is also available on Kindle at Amazon.in (Rs. 244.30) or at Amazon.com ($3.36 or Rs. 244.30).
Request to Write a Review
If you have read the book, please review it at Amazon/Flipkart/Infibeam/Google Play. It will make us better writers.
🔥Enjoy massive discounts on our courses, robo-advisory tool and exclusive investor circle! 🔥& join our community of 7000+ users!
Use our Robo-advisory Tool for a start-to-finish financial plan! ⇐ More than 2,500 investors and advisors use this!
Track your mutual funds and stock investments with this Google Sheet!
We also publish monthly equity mutual funds, debt and hybrid mutual funds, index funds and ETF screeners and momentum, low-volatility stock screeners.
- Do you have a comment about the above article? Reach out to us on Twitter: @freefincal or @pattufreefincal
- Have a question? Subscribe to our newsletter using the form below.
- Hit 'reply' to any email from us! We do not offer personalized investment advice. We can write a detailed article without mentioning your name if you have a generic question.
Join 32,000+ readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email! (Link takes you to our email sign-up form)
About The Author
Dr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter(X), Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! ⇐ More than 3,000 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter the market condition is!! Watch the first lecture for free! One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Our new course! Increase your income by getting people to pay for your skills! ⇐ More than 700 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts and pays you! (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos!
Our new book for kids: “Chinchu Gets a Superpower!” is now available!
Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. - Arun.Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook is for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Do you want to check if the market is overvalued or undervalued? Use our market valuation tool (it will work with any index!), or get the Tactical Buy/Sell timing tool!
We publish monthly mutual fund screeners and momentum, low-volatility stock screeners.
About freefincal & its content policy. Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing, retirement and personal finance developments. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified with credible and knowledgeable sources before publication. Freefincal does not publish paid articles, promotions, PR, satire or opinions without data. All opinions will be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
- Twitter @freefincal
- Subscribe to our YouTube Videos
- Posts feed via Feedburner.
Our publications
You Can Be Rich Too with Goal-Based Investing
Published by CNBC TV18, this book is meant to help you ask the right questions and seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now.Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want
This book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.Your Ultimate Guide to Travel
This is an in-depth dive into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, and how travelling slowly is better financially and psychologically, with links to the web pages and hand-holding at every step. Get the pdf for Rs 300 (instant download)