Comments on: More On Missing The 10 Best Days

By: David

David — Sat, 30 May 2009 11:50:59 +0000

The premise of missing the ten best or the worst is based on a notion of clairvoyance that you could miss just THOSE days. This idea is based on market timing as predictive. To that point, it is a fool's errand. This "missing the ten best" myth has been perpetuated by an industry that is only paid if you stay invested. Wall Street has not figured out how to get paid for sitting in cash.
If you review many of the studies, you do find that many of the "best" days are recovery days following some of the "worst" days. If you were not invested in the worst days you would not need the best days to earn back what you lost. Losses hurt a portfolio worse than gains because losses and gains do not have a linear relationship. Remember that a 50% loss requires a 100% gain to get back to par. I use two trend following models published in the mid 90's that got you out of the markets in early 2000 and in late 2007. The models did not get you back into the markets until mid 2003 and am still on the sidelines now. Having avoided both 50% bear markets, you do not have to rush to get back in to earn what you have lost. If you want to continue to listen to Wall Street you will continue to be dumb money.

By: Paul Gire

Paul Gire — Thu, 02 Apr 2009 16:54:36 +0000

Those interested in this topic might find this article of interest. It provides another view of this Wall Street myth.

http://www.fpajournal.org/BetweentheIssues/LastMonth/Articles/MissingtheTenBest/

By: Celtic

Celtic — Tue, 21 Oct 2008 11:54:52 +0000

I got out the day Lehman went under and Merrill was about to follow, albeit in a different fashion. Sold every nickel I had in stocks except for a small stash in 2 volatile funds that had already gone done a ton so nothing to do but wait for the uptick. Had a huge chunk in an S&P 500 index and got out of that at 110.

I'd never been a market timer and never been 'out' of the stock market a single day since the late 80s, but seeing the crap happening that day brought to mind the old quote about "I'm no longer worried about the return ON my money; I'm now worried about the return OF my money". Well, that was me, folks. I've got mortgages on 2 homes and another on a commercial investment, have a nice job but nonetheless one that could go up in smoke tomorrow if a buyout occurred and it was time to get defensive.

A week ago after the multi-nation action to stem the bloodletting, the market rallied a ton up from about 83 all the way to about 92 and a couple of buddies enjoyed sending me the news (like I hadn't already seen it). I responded that this crazy market isn't cured and the euphoria likely wouldn't last and I'm staying put. It didn't stay, it went way down again to about the exact same level, and I'm still staying put. There have been a couple of good days (which I don't mind at all, frankly) but here we are aboug a month after I got out and the index is at 90. So I've saved 6 figures by getting out at 110, missed some GREAT days in the market, and if I got fully back in today I'd be up over 18%.

I completely agree with the negative effects of long term market timing, but I'm also living proof that if you see a freight train coming, it's better to get out of the way than recite the incredibly low statistics about how many people get hit by freight trains each year. I'll start putting some of the money back in shortly and dollar cost averaging my way back to my former investment levels. That said, I expect a LOT more volatility in the coming year and wouldn't be surprised to see a huge spike down if Obama gets elected due to his Cap Gains stance. But I don't want to be completely out if McCain pulls a rabbit out of his hat and the market rallies. I know, it sounds like gambling rather than responsible investing but right now I've got 18+% of the house's money – so I'm rolling with it.

By: JTR

JTR — Thu, 17 Jan 2008 01:28:00 +0000

I too am not an advocate of market timing, however, many fundamental investors will sit on large amounts of cash when bottom up analysis dictates that the values are not there in the market (i.e. stock prices are too high).

These investors do so in the face of these kinds of stats on missing the best days of the market over say 10 years.

Thus, I see TFB's argument as one which should embolden such fundamental investors fraught over "missing something" when in fact they are prudently protecting investors capital.

By: TFB

TFB — Wed, 29 Aug 2007 06:54:00 +0000

Ted,

If the market timing strategy is to anticipate the 10 worst days and get out right before them, then yes, this analysis shows that it won't work. It also shows that missing the 10 best days is not a reason not to time the market. I hope you can tell the subtle difference here.

Missing the 10 best days is a bad example. It's not going to happen. Let's just not use it. If we say the best days are so easy to miss because they usually happen after a selloff, market timers can come back with another strategy: stay out of the market until a big selloff, then pile on. If we say this strategy won't work, we must also admit missing the 10 best days won't happen either.

Market timing takes many shapes and forms. I don't think we can positively prove they ALL won't work. A market timing strategy doesn't have to work all the time. It only has to work during the life time of those who practice it. I don't think there is a way to identify which strategy will work at what time, but I have no proof.

By: Ted

Ted — Mon, 27 Aug 2007 18:50:00 +0000

Doesn't your analysis prove the point that started the whole thing, TFB?

If the odds are 2.8 billion billion billon to 1 to miss the 10 best days in the market over 25 years, then how good are the odds of successfully investing through market timing?

Not good, which was the whole point of the original "meaningless stat" that started the whole thing. Either way they're both just illustrations.