Should investors wait endlessly for markets to get cheaper, or just stay invested and let time do the heavy lifting? In a recent post on X, Niranjan Avasthi, Senior Vice President, Edelweiss Mutual Fund, has reignited one of the oldest debates in investing — whether valuation decides returns, or whether patience eventually matters more.
In a tweet, Avasthi laid out what he called the “valuation vs time paradox in investing” — the idea that while buying at lower valuations does improve short-term return odds, the power of valuation fades as the investment horizon stretches.
“A widely held belief in investing is that buying at lower valuations tends to result in better returns, while investing at higher valuations can lead to poorer or even negative returns. Historical data proves this view, but only up to a certain point.”
Beyond that point, another equally important principle starts to dominate – over the long term, it is time spent in the market, rather than trying to time the market perfectly, that plays a more important role in driving returns, he added.
Why valuations matter a lot in the short term
According to Avasthi’s analysis, valuation has a very visible impact on returns over shorter periods such as one year and even three years. In simple terms, if an investor buys when market valuations are low, the odds of earning stronger near-term returns are significantly better.
He pointed out that historical data across PE bands clearly show this pattern. Markets bought below lower PE ranges, such as under 15 times earnings, have historically delivered stronger one-year forward returns. By contrast, buying at richer valuation bands — especially above 23 PE — has at times led to weak or even negative average returns.
“1yr and even 3yr forward returns vary widely depending on the valuation at which one enters the market. For instance, investing at PE levels below 15 has historically delivered very strong average 1yr returns, while investing at higher PE levels, especially above 23, has even resulted in negative average returns,” he said in the tweet.
That is exactly why valuation-conscious investors often prefer to wait for corrections before putting fresh money to work. The logic is straightforward: buy lower, reduce downside, and improve expected returns.
The range of outcomes in the short term is extremely wide, with both sharp gains and deep negative returns visible across all valuation buckets, he added.
But the problem is that investors often stretch this logic too far.
Because while valuations can absolutely influence what happens over the next 12 to 36 months, they become a much weaker predictor of what happens over the next 10 years.
Why time in the market starts dominating over a decade
This is where Avasthi’s “paradox” becomes meaningful for ordinary investors.
According to his post, once the holding period extends to five years and especially 10 years, the gap in returns across valuation bands begins to shrink sharply. Over long periods, returns start clustering in a much narrower band, meaning the difference between buying at “cheap” and “expensive” levels becomes much less dramatic than many investors assume.
“However, as the investment horizon extends to five and ten years, this gap starts narrowing significantly. 10yr returns across different PE bands start clustering within a much tighter range of roughly 10% to 15% cagr,” he explained, adding that this indicates that while valuations can influence outcomes in the near term, their impact reduces meaningfully over longer holding periods.
In India, this matters even more because the market has historically spent a large amount of time trading above 18 PE.
So what does this mean for investors?
According to Avasthi, investing at lower valuations can potentially add about 1–2% incremental returns over a 10-year period. However, this benefit is far smaller than what short-term return differences might suggest.
“Over the long term, investor behaviours like staying invested, being disciplined, and avoiding the temptation to time the market, plays a far more critical role than trying to exit and enter at the perfect valuation,” he said.
For retail investors, Avasthi’s message is simple: valuations matter a lot in the short term, but over the long term, discipline and time in the market matter much more.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
