In the Big Picture post on this chart earlier this week, Barry Ritholtz is drawn to that spiking yellow line. “If you manage to avoid the 10 Worst Days, your portfolio more than doubles the Buy & Hold performance,” he writes. $100,000 invested in the S&P 500 ETF in February 1993, would have grown to a total of $692,693.00. Buy and hold gets you to $324,330.15.
Figure out a way to miss the losing periods, Ritholtz notes, and you’re literally golden.
But to me, it’s just as interesting that the 10 best days almost exactly outweigh the 10 worst days. Other examinations that look at the best and worst months have found the exact same thing.
“The lesson I take from this:,” Ritholtz writes, “It is great if you can avoid the major down days, but only if you can do so in a way that does not have you missing the major up days.”
Which honestly, sounds pretty difficult to do, no?
Even harder than you might imagine. In the comment session that follows the post, the discussion highlights research that’s found those good and bad days are often quite closely clustered together. So you’d have to be trading in and out with great alacrity to stand any chance of getting the good without the bad.
Michael A. Gayed a CFA at Pension Partners who sent Ritholtz the original chart says it’s meant to explain why buy and hold works. And that the reason is: you have to be in the market on its 10 best days whenever they may come.