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Amazing market stats - shockingly you can't time them
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Terry Smith - manager of a large UK managed fund made this point......

"After all, I suggest, the US stock market is experiencing its longest bull run in history, so surely a change for the worse is more likely than the market climbing higher up the ‘wall of worry’? Smith responds that investors must simply ask themselves which asset classes other than equities offer the prospect of decent gains, and whips out the charts: a £10,000 investment in the US S&P 500 index 15 years ago, left to grow with dividends reinvested, would be worth £41,333 today. That tidy sum represents a 313 per cent increase.

But then comes the killer stat: had you not been invested for the best 10 days in the market during that 15-year period, you would have missed out on profits of £20,460, and gained a more pedestrian 109 per cent. Miss the best 20 days and that £10,000 falls to just £13,629. The 30 best days out of the market see you making a loss of 6 per cent over 15 years. And that’s before inflation
."
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Re: Amazing market stats - shockingly you can't time them [Andrewmc] [ In reply to ]
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Warren Buffett has said about the market, "I don't know necessarily where to invest, only that I should invest".

DFL > DNF > DNS
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Re: Amazing market stats - shockingly you can't time them [Andrewmc] [ In reply to ]
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Andrewmc wrote:
Terry Smith - manager of a large UK managed fund made this point......

"After all, I suggest, the US stock market is experiencing its longest bull run in history, so surely a change for the worse is more likely than the market climbing higher up the ‘wall of worry’? Smith responds that investors must simply ask themselves which asset classes other than equities offer the prospect of decent gains, and whips out the charts: a £10,000 investment in the US S&P 500 index 15 years ago, left to grow with dividends reinvested, would be worth £41,333 today. That tidy sum represents a 313 per cent increase.


But then comes the killer stat: had you not been invested for the best 10 days in the market during that 15-year period, you would have missed out on profits of £20,460, and gained a more pedestrian 109 per cent. Miss the best 20 days and that £10,000 falls to just £13,629. The 30 best days out of the market see you making a loss of 6 per cent over 15 years. And that’s before inflation."

I agree that attempting to time the market is a fool's endeavor. To win at that game, you need insider information and/or vast computing power.

But, that often-repeated stat about "missing the best n days" is misleading. If instead, you'd been smart/lucky enough to miss the n worst days, your return would be even more impressively larger as the drop on the worst days is (much) larger than the gain on the best days.


"100% of the people who confuse correlation and causation end up dying."
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Re: Amazing market stats - shockingly you can't time them [MOP_Mike] [ In reply to ]
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MOP_Mike wrote:
Andrewmc wrote:
Terry Smith - manager of a large UK managed fund made this point......

"After all, I suggest, the US stock market is experiencing its longest bull run in history, so surely a change for the worse is more likely than the market climbing higher up the ‘wall of worry’? Smith responds that investors must simply ask themselves which asset classes other than equities offer the prospect of decent gains, and whips out the charts: a £10,000 investment in the US S&P 500 index 15 years ago, left to grow with dividends reinvested, would be worth £41,333 today. That tidy sum represents a 313 per cent increase.


But then comes the killer stat: had you not been invested for the best 10 days in the market during that 15-year period, you would have missed out on profits of £20,460, and gained a more pedestrian 109 per cent. Miss the best 20 days and that £10,000 falls to just £13,629. The 30 best days out of the market see you making a loss of 6 per cent over 15 years. And that’s before inflation."


I agree that attempting to time the market is a fool's endeavor. To win at that game, you need insider information and/or vast computing power.

But, that often-repeated stat about "missing the best n days" is misleading. If instead, you'd been smart/lucky enough to miss the n worst days, your return would be even more impressively larger as the drop on the worst days is (much) larger than the gain on the best days.

I wonder how close a top N drop comes to a top N raise.

Just Triing
Triathlete since 9:56:39 AM EST Aug 20, 2006.
Be kind English is my 2nd language. My primary language is Dave it's a unique evolution of English.
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Re: Amazing market stats - shockingly you can't time them [Andrewmc] [ In reply to ]
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Andrewmc wrote:
Terry Smith - manager of a large UK managed fund made this point......

"After all, I suggest, the US stock market is experiencing its longest bull run in history, so surely a change for the worse is more likely than the market climbing higher up the ‘wall of worry’? Smith responds that investors must simply ask themselves which asset classes other than equities offer the prospect of decent gains, and whips out the charts: a £10,000 investment in the US S&P 500 index 15 years ago, left to grow with dividends reinvested, would be worth £41,333 today. That tidy sum represents a 313 per cent increase.

But then comes the killer stat: had you not been invested for the best 10 days in the market during that 15-year period, you would have missed out on profits of £20,460, and gained a more pedestrian 109 per cent. Miss the best 20 days and that £10,000 falls to just £13,629. The 30 best days out of the market see you making a loss of 6 per cent over 15 years. And that’s before inflation
."

Counterpoint: if you had invested in the Nikkei 225 in 1987, you're even. If you had invested in the Nikkei 225 in 1990 you're currently still down ~45%.


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Re: Amazing market stats - shockingly you can't time them [GreenPlease] [ In reply to ]
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Tough to know when to get in and when to get out. I think most of us, if we invest broadly and consistently over a 25+ year horizon, will come out ahead.

drn92
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Re: Amazing market stats - shockingly you can't time them [MOP_Mike] [ In reply to ]
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MOP_Mike wrote:
I agree that attempting to time the market is a fool's endeavor. To win at that game, you need insider information and/or vast computing power.

But, that often-repeated stat about "missing the best n days" is misleading. If instead, you'd been smart/lucky enough to miss the n worst days, your return would be even more impressively larger as the drop on the worst days is (much) larger than the gain on the best days.

I don't think your point about the worst days seeing bigger changes than the best days is right - following Wikipedia page shows the top 20 daily gains and losses on the S&P 500, if you sort them in percentage terms there really isn't a lot of difference in magnitude, they're much of a muchness - https://en.wikipedia.org/..._the_S%26P_500_Index

What is relevant is that the dates tend to be clustered. E.g. 6 of the 20 biggest daily gains were in a 2 month period from September to November 2008. But 5 of the biggest daily losses were also in this period, and a 6th was just after it in December 2008. In fact there are only a couple of great days which aren't closely preceded or followed by one or more terrible days, and vice versa. Which does validate your point that trying to time the market, at least in terms of day trading, is a fool's game. Would be almost impossible to have benefited from those great days without also getting hit by the terrible ones, unless as you say you have insider information.

So for the regular investor saving out of regular salary/income, I think the best approach is simply investing monthly and staying invested, that way you smooth out the peaks and troughs. I do wonder though whether the same logic applies for the more macro investment decisions such as investing a lump sum, or moving money from stocks to less volatile investments as you near retirement age. I do think that as long as you're not trying to pick the absolute top or bottom of the market that you can somewhat time those decisions. E.g. if somebody had a lump sum in cash right now, say from an inheritance or selling a property, and wanted to invest it in the long term, I don't think that putting all of it into stocks in one go when the markets are at an all time high is a great idea. Maybe better to drip-feed it in over a few years, or as and when there look to be good buying opportunities. That way if today does turn out to be a high that isn't reached again for another decade, you've at least significantly lowered your average buy price.
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Re: Amazing market stats - shockingly you can't time them [cartsman] [ In reply to ]
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I think with large lump sums it's a real problem

100k in one day. 1m in one day

The wrong day that could go very wrong

5k a month over 50 months or 10k for a 100..........

If be gutted if I dropped that kind of cash on the wrong day
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Re: Amazing market stats - shockingly you can't time them [cartsman] [ In reply to ]
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cartsman wrote:
MOP_Mike wrote:
I agree that attempting to time the market is a fool's endeavor. To win at that game, you need insider information and/or vast computing power.

But, that often-repeated stat about "missing the best n days" is misleading. If instead, you'd been smart/lucky enough to miss the n worst days, your return would be even more impressively larger as the drop on the worst days is (much) larger than the gain on the best days.


I don't think your point about the worst days seeing bigger changes than the best days is right - following Wikipedia page shows the top 20 daily gains and losses on the S&P 500, if you sort them in percentage terms there really isn't a lot of difference in magnitude, they're much of a muchness - https://en.wikipedia.org/..._the_S%26P_500_Index

What is relevant is that the dates tend to be clustered. E.g. 6 of the 20 biggest daily gains were in a 2 month period from September to November 2008. But 5 of the biggest daily losses were also in this period, and a 6th was just after it in December 2008. In fact there are only a couple of great days which aren't closely preceded or followed by one or more terrible days, and vice versa. Which does validate your point that trying to time the market, at least in terms of day trading, is a fool's game. Would be almost impossible to have benefited from those great days without also getting hit by the terrible ones, unless as you say you have insider information.

So for the regular investor saving out of regular salary/income, I think the best approach is simply investing monthly and staying invested, that way you smooth out the peaks and troughs. I do wonder though whether the same logic applies for the more macro investment decisions such as investing a lump sum, or moving money from stocks to less volatile investments as you near retirement age. I do think that as long as you're not trying to pick the absolute top or bottom of the market that you can somewhat time those decisions. E.g. if somebody had a lump sum in cash right now, say from an inheritance or selling a property, and wanted to invest it in the long term, I don't think that putting all of it into stocks in one go when the markets are at an all time high is a great idea. Maybe better to drip-feed it in over a few years, or as and when there look to be good buying opportunities. That way if today does turn out to be a high that isn't reached again for another decade, you've at least significantly lowered your average buy price.


Interesting wiki link. Thanks.

I jumped at the "big down days are bigger than big up days" assumption based on my risk-premium analysis of the VIX futures term structure, which predicts kind of a "sawtooth" pattern in the underlying market performance. Hence the over-crowded trade of shorting volatility the past few years (which worked great, until it didn't when XIV blew up...)

Nevertheless, I think my original point about "missing the best n days" being misleading as it ignores "avoiding the worst n days" still stands.

I'll have to go look at my models again -- if there's a disconnect between the VIX and the underlying market, there may be money to be made (previous comments about the foolishness of market timing not withstanding...)


"100% of the people who confuse correlation and causation end up dying."
Last edited by: MOP_Mike: Nov 12, 18 9:19
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Re: Amazing market stats - shockingly you can't time them [Andrewmc] [ In reply to ]
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Wouldn't you also be gutted if you had 1M sitting in cash and let it sit there an extra day and missed the big up day? And given that the average is net up, on average you would lose out by waiting. I think the right answer as painful as it might be if things go the wrong way is still to put it all in at once. You are right that you never feel especially bad if you periodically invest any small excess cash, but if you suddenly get a lump sum I think you still are statistically better off putting it all in than spreading it out over time.
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Re: Amazing market stats - shockingly you can't time them [jbank] [ In reply to ]
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jbank wrote:
Wouldn't you also be gutted if you had 1M sitting in cash and let it sit there an extra day and missed the big up day? And given that the average is net up, on average you would lose out by waiting. I think the right answer as painful as it might be if things go the wrong way is still to put it all in at once. You are right that you never feel especially bad if you periodically invest any small excess cash, but if you suddenly get a lump sum I think you still are statistically better off putting it all in than spreading it out over time.

It would be pretty easy to build a model to find the optimum time period to DCA into the market if you had a lump sum ready to invest. Just a WAG, but I suspect that the optimum time would be on the order of 6 months to a year, but I don't know for sure.


"100% of the people who confuse correlation and causation end up dying."
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Re: Amazing market stats - shockingly you can't time them [jbank] [ In reply to ]
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Yes but I think kahnenan and taversky showed that small losses hurt more than big wins feel good. So you miss out on a win and move on but you lose huge and reward call it forever ;)
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Re: Amazing market stats - shockingly you can't time them [MOP_Mike] [ In reply to ]
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I believe the modeling has already been done and lump sum wins. http://business.time.com/...cost-averaging-dumb/
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Re: Amazing market stats - shockingly you can't time them [jbank] [ In reply to ]
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jbank wrote:
I believe the modeling has already been done and lump sum wins. http://business.time.com/...cost-averaging-dumb/


Interesting. My take: the "all at once" strategy makes sense if you look at returns over a long enough period due to the market's long-term upwards trend. You could reach a similar conclusion about stock/bond allocation ratios in your portfolio (100% stocks win long-term).

But, investment strategies generally try to optimize the return/volatility ratio (I.e., higher risk (volatility) => higher reward). The all-at-once strategy surely would experience higher volatility than DCA over some modest period. And, over shorter investment periods than your link *might* even outperform lump-sum-at-once. (Again, just speculating here -- I haven't run the numbers).

ETA: It looks like your link reached a similar conclusion:

"In a quarter of the simulations, dollar-cost averaging with $1 million beat the lump sum approach by $43,000 or more, and in 5% of the cases dollar-cost averaging beat lump sum investing by more than $200,000. Arguably, this risk reduction is worth the greater likelihood that you’ll forfeit gains—especially for older savers with just 10 to 15 years before retirement. Anyone under 45, however, should find the lump sum model compelling—so long as they are diversified and comfortable with their asset allocation."


"100% of the people who confuse correlation and causation end up dying."
Last edited by: MOP_Mike: Nov 12, 18 9:48
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Re: Amazing market stats - shockingly you can't time them [MOP_Mike] [ In reply to ]
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100% forfeiting gains feels less bad than losing your arse
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