Losing 500K in 10 days.

You have heard me mention now on several occasions why speculating and market timing doesn’t work.  However, a picture paints a thousands words and statistics. 

Let’s look at the graph below which is from JP Morgan’s research. It shows investment results from depositing $10,000 in the S&P in 1993 until 2013, adjusted for how many `good` days they missed in the market. 

The above information is absolutely amazing.  Despite the fact the data is for 20 years (or about 730 days), an investor who invested $10,000 and stayed fully invested would have had about $58,000 in 2013.  Somebody who missed just the ten best days (about 1.36% of the 730 days), would have about half that amount!  

An investor who lost out on the 20 best days, would have just over a quarter of what the fully invested investor had, and the situation gets worse for those who miss the 30 best days.  

Many people have heard of the 80/20 rule.  In investing, even though stock indexes have regularly produced 10%+ before inflation and 6.5% after inflation over the long-term, the returns aren’t consistent.  Some months and years and days vastly outperform.  There has been days where the S&P has surged by 7% or more in a single day, for example. 

Needless to say as well, if somebody had $1M invested in the markets, their accounts would be worth about $500,000 less if they just missed the 10 best days from 1993 until 2013.  

The problem is, nobody knows when the best days will happen because there are too many unknown unknowns and known unknowns. Perhaps tomorrow the markets will surge by 5% in a day if President Trump u-turn’s on a China trade war, or if the ECB or Federal Reserve unexpected u-turn on QE and interest rates.  Certainly few expected US markets to be up sharply since Trump’s election.

So trying to be too cute, and buying and selling, simple doesn’t work for 98% of people.  So be invested today.  You never know, tomorrow may just be one of those days!

Adam Fayed – International AMG – adamfayed@iamgltd.com

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