Tag Archives: The Big Picture

Arends Case for Moderate Market Timing

Wall Street Journal columnist Brett Arends recently penned another piece on the dangers of blind “buy and hold” investing.

Citing a study by Spanish academic Javier Estrada, Arends makes an argument similar to a recent post on The Big Picture that took great interest in the upside of avoiding the market’s worst days.

The study by Estrada, a finance professor at the IESE Business School at the University of Navarra, seems exhaustive, covering, Arends writes, “nearly a century’s worth of day-to-day moves on Wall Street and 14 other stock markets around the world, from England to Japan to Australia.”

Over an investing period of about 40 years, he calculated, missing the 10 best days would have cost you about half your capital gains. But successfully avoiding the 10 worst days would have had an even bigger positive impact on your portfolio. Someone who avoided the 10 biggest slumps would have ended up with two and a half times the capital gains of someone who simply stayed in all the time.

Arends doesn’t come out in favor of trying to hop in and out of the markets day-to-day but he does argue that these gyrations give added value to dividend-bearing stocks which offer a steady, predictable portion of their total return. Continue reading

Arguing about the Market’s Best Days

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. Continue reading