The peanut gallery really enjoys bombarding me with criticism regarding my repeated calls for investor caution amid what at this point can only be described as market euphoria.
Apparently, if you sell anything ever, you are “trying to time the market.”
That’s a ridiculous characterization when you think about it. Imagine sitting at the casino with a tall stack after a long string of good luck and then, when you decide that maybe it’s time to lock in your gains and cash out, your friend is like “nah man, don’t try to time the table… you should keep playing.”
That said, moving in and out of the market is likely to be a fool’s errand more times than not and with that in mind, I present a visual and some accompanying color from Goldman whose analysts show you what you would have missed had you not been invested on the best days of the rally.
But before anyone gets too excited about this being “proof” that you should stay invested no matter what, note how much better off you would have been had you been prescient enough to dodge the bad days.
Historically, it has been very costly to not be invested on the largest return days each year. Similarly, it has been very costly to be invested on the most negative return days each year. While this may be intuitive given events such as the tech bubble or global financial crisis in 2008-09, this has still been very true since 2008-09, for example. How costly? Exhibit 3 shows S&P 500 price performance, as well as what it would have been if either the 10 best return days or the 10 worst return days were excluded from the equity index each year since 2009. Cumulative price returns since 2009 are 164% for the index, as compared with only 23% if the 10 highest return days each year were missed. (By further comparison, cumulative price returns would have been 500% were the worst 10 return days each year avoided.)