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May 13, 2008


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I never liked that "best X days" stat cause it is only given from one side except for this one time I saw it used from the other side:
Timing the Market, and Proud of the Results, New York Times

Between 1980 and 1989, the S.& P. had an average annual return of 17.6 percent. If you missed the 10 best days, your return fell to 12.7 percent and if you missed the 20 best days, your return fell to 9.6 percent. But let's see what happens if you miss the worst 10 days. According to a study by Ned Davis Research, your return pops up from 17.6 percent to 27 percent and then if you avoid the worst 20 days your return pops up to 31 percent. So I don't know why they played that study on one side.

The "best x days" examples give nice eye popping numbers, so I guess it is a good gimmick to keep people in the market (or to convince people to trade if it is used the opposite way, like in this article).

I don't try to time the market and stay in because it trends up over any long period and I will be in for a long period. Each day, on average, the market goes up, and there is no reason to think I can better an entire market of experts and figure out which days are the down ones. In the end, there is no reason to expect your time out of the market will include more of the best days or worst days, just that, on average, you will lose the difference between the market average and the interest you get from having it as cash.

The 'best x days' has value if you are a buy and hold investor. It provides evidence that staying in the market works better for the typical investor than trying to time the market. Since you never know when the 'best x days' are going to happen you have to stay in the market to take advantage of them. Since you never know when the 'worst x days' are going to happen you may save yourself the losses but you also lose out on the opportunity if you stay out of the market.

This is different than dollar cost averaging. There is a nice piece in USA Today about that:

This statistic is silly. The largest single day market increases typically occur during periods of high volatility immediately before or after a large downturn. If you are out of the market for the big increase it is inevitable that you will miss the big decrease as well.

I just came here to point out how silly this stat is, but I see that's been taken care of!

Buy and hold is the way to go for 99% of the people out there, but using useless stats to convince people does nothing to advance overall education and knowledge.

I can agree with the overall theme here, though also agree with Kurt. The one issue that 'buy and hold', 'invest for the long term' often over looks or doesn't address ,imho, is the following: one day the 'long term' arrives. Then what? A migration (as opposed to flight) to safety makes sense. And while some, many in fact, need to maintain an equity position to replenish the nest egg, not everyone needs it. Regular readers know Old Limey's story. And I'll bet other posters and even FMF when retirement age 66 to 70 gets here should move into bonds and other safer instruments.

I'm in my early 60's and have 30% in equities. In the next few years will drop to 10 to 20%. Any thoughts?

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