Perfect Timing for the Mid Month

Written by Senior Portfolio Manager, Michael Hakes, CFA, MBA.

This month, we are taking a break from our usual discussion of individual stocks. What better time than now, during a new paradigm (Gen AI), economic uncertainty, political uncertainty and climate change to talk about market timing?

Market timing is the practice of buying and selling assets based on predictions of market movements. It may seem appealing, and I am sure you have heard some people claim they can do it for you, for a small fee!!  But it comes with significant risks.

We highlight two studies, one looking at data over 20 years and the other over 100 years.

In Figure 1, JP Morgan looked at the returns for an investor who stayed fully invested over 20 years beginning in Jan 2003 and compared it to the returns this same investor would have achieved had they missed the 10 best days over that period. The results are astonishing. Fully invested, $10,000 grew to $64,844 over 20 years, while if you missed the 10 best days, your investment only grew to $29,708!! You can see in the chart below what happens if you miss the best 20 days, 30 days etc.

Figure 1. 

The second study, by the Bank of America (Figure 2), looks at performance over the decades, starting in the 1930s. The 1930s clearly was not a good decade for investing. If you were fully invested over the period, you lost 42%. However, if you missed the 10 best days, you lost 79%. If you managed to miss the 10 worst days, your return improved to +39%. You can see the various returns over the decades.

The most important take away is that Bank of America found that if an investor missed the 10 best days per decade, the total return would have been 28%. If that investor had remained fully invested, the return would have been 17,715%.

Figure 2:

The concept of market timing is indeed a fascinating aspect of investment strategy, particularly in the context of the current global landscape marked by rapid technological advancements, economic fluctuations, political instability, and environmental concerns.

However, the potential cost of attempting to time the market can be substantial. Missing out on just a few key days can dramatically alter the return of an investment portfolio. This highlights the inherent unpredictability of the market and the difficulty of making accurate forecasts.

The historical data presented by JP Morgan and Bank of America serves as a compelling argument for a long-term, fully invested approach. It suggests that despite short-term volatility and uncertainties, maintaining a consistent investment strategy yields significantly better results over time. This approach aligns with the philosophy of The Murray Wealth Group, which opts to stay fully invested at all times, seeking out opportunities regardless of the prevailing market conditions. It’s a testament to the belief that, although market timing can seem alluring, the discipline of staying the course often proves to be the more prudent path.