Discipline vs luck: What's more important when trying to make money?

Is it the right time to invest in stock markets? This is the first question we face when we think about investing. But is that question worth asking?

There are influencers, news channels, investing wizards, etc., who share views on the market movement on 1-minute candle formation to what to expect in the coming decade.

Investors are bombarded with a huge inflow of this kind of information. Hence, we thought, why don’t we take a look at how the markets have performed and judge the importance of market timing based on the past three decades of historical data?

We observe there are two types of investors: The disciplined investors who stick to their investing schedule irrespective of the noise, and the market timers who try to time the markets.

We believe a disciplined investor would do much better than someone who is trying to time the markets.

We considered 3 types of investors:

Mr Disciplined – Believes in disciplined investing. He simply invests on the first day of every month.

Mr Lucky – One who tries to time the market and has been so lucky to pick the bottom of every month.

Mr Unlucky – One who tries to time the market but is so unlucky that he invests at the top of every month.

These three investors invested Rs 10,000 each month in Nifty50 from July 1990 to September 2022.

Anyone would love to be in the shoes of Mr Lucky. We are talking about being lucky in the markets for straight 30+ years.

Intuitively, we know that Mr Lucky would have the biggest portfolio. But what do you think is the difference between Mr Lucky and Mr Disciplined?

For 32 years if someone can predict the bottom every month, surely his portfolio should be multiple times that of someone who just invests on the 1st of every month. After all, we hear so much about compounding.

Before we did this analysis, our team's guess was that this would be something close to 50%. When we ran the numbers, we were surprised by the results.

Here are the actual portfolios.


The difference between Mr Lucky and Mr Disciplined is just 5%. Can you get lucky to time the market every month? Practically speaking, we all know the answer.

But is it worth worrying about being insanely lucky? The numbers say it doesn't matter. Discipline is as good as luck if you stay invested for 30+ years.

Wait. Does everyone have the patience to stay invested for 30+ years? Definitely not.

What if we see the results across different time periods? We were curious to find out the effectiveness of market timing starting from the 5-year period. So, we ran a follow-up simulation to see the impact of market timing in different cases.

As we are primarily interested in seeing the difference between Mr Lucky and Mr Disciplined, we ran this analysis for only these two types of investors. The following table shows the difference between the portfolios of Mr Lucky and Mr Disciplined across different time periods.



The maximum difference observed is 13%, which is in a 5-year period. On the other hand, a minimum of 7% is also observed over a 5-year period.

Since we were focusing on the most lucky cases, let’s stick to the 13% difference case. That is getting 2.47% edge per annum, but with close to zero probability.

I would prefer to ignore that unrealistic 2.47% return per year. Instead, I would love to invest that time in other aspects of my life to increase my overall quality of life.

Finally, we came to realize the true meaning of the quote that states that “time in the market is more important than timing the markets”.

That’s why when investors ask us about our views of the markets, and whether they are undervalued or overvalued we always give them the same standard and boring reply that we don’t know, and it really doesn’t matter.

The power of compounding takes care of market timing over the long term. Better be disciplined than chase luck for years.


Note: From 1990 to 2022, Mr FD invested in FD at a 7% interest rate. His SIP of Rs 10,000 every month ended up at Rs 1.44 crores as on Sep 2022. Mr Unlucky, despite being so terrible at timing his investments, had 52% higher returns compared to Mr FD.

(The author is Director (strategy) and head of investments at Gulaq, a part of Estee Group)

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)