Is it wise to wait for corrections to invest?

When the Sensex level was at 10000 the first week of January, a high net worth investor I knew said "These are excellent levels to buy and I will start buying if the markets were to go at 9000". At 9000, he said I will buy at 8000. When the Sensex touched 8000 in March, I will now buy at 6000. Like many investors in the equity markets, he is still waiting. At every level now he says he will buy when the markets correct 10-15%. In the last several days FIIs have turned net sellers, markets have correct 8-10% from its peak, and he is still waiting.

More money is lost waiting for corrections than in correction themselves because even when a correction happens, people seldom have the courage to invest. The fixation to invest at the lowest level or should I say cheapest level is so much that people often wait even when the equity markets stink. Lowest and cheapest both are subjective terms and will vary from time to time. So does investing at the lowest level really matter so much in the long run that you lose your mind and sleep over it. Does it matter so much that your investing quotient often leads you to improper decisions and you always find yourself unlucky in the stock markets?

Let's find out with a couple of examples
Before we look at the answers, a key question needs to be answered. What does long run mean? The meaning might vary from a few quarters to 25+ years depending on who is answering the question. A lot of people say that my time horizon is 2 years. When you ask them do you need this money after 2 years, the answer is a confused no. On further probing, most people will say I might not need this money in the next 15, 20 or even 25 years. Even some of the retirees who have steady income through other investments, a good contingency reserve and no liabilities or dependents often have a time horizon of 20-25 years. Retirement itself is a fairly long period often stretching into 25-35 years. Now that the meaning of long run is known, let's get into the numbers.

Let's say you started investing in 1991 after the Narsimha Rao government. presented its first budget. There was euphoria all around us at that point of time. You continued your investment every month starting from 1991 to December 2008 and you were unlucky every time to invest at the highest level of the index. What do you think was your return on June 1, 2009? At the same time you were lucky enough to invest at the lowest level of the index every month through that period. What an achievement most would think? If you indeed managed this feat you would have earned a return of 16.11% p.a. Now wait a second before you get all excited. Even if you were unlucky every month and had invested at the highest level, you would have made an astounding 15.56% p.a. The difference is a mere 0.55% p.a. However it is unlikely that you always invested at the highest level or always at the lowest level which means that if you invested at a particular day every month your returns are likely to be in between these 2 numbers.  If you had stuck to a fixed date of 1st every month, you would have earned 15.88% p.a over 18 years. The difference now narrows down to 0.23% p.a which is something that most equity investors will never be worried out.