Be still, my beating heart: Time in the market rather than timing the market
Endowus Insights

Be still, my beating heart: Time in the market rather than timing the market

Mar 2022
Feb 2018
"The stock market is a device for transferring money from the impatient to the patient."
  • Warren Buffett

The Dow lost more than 1,000 points in a single day of trading for the first time, ever, then it did it again a few days later. Pundits blamed everything from strong wage growth to the markets testing the new Fed chair - some people even tried to blame Obama (MarketWatch on Fox News). Powell should be flattered if investors all banded together to test his reflexes. There is really no knowing of the cause - it could have just as easily been due to the Super Bowl results or butterflies flapping their wings in Singapore.

Markets are humbling and unfortunately, we are not smart enough to time them. What we can control is the time spent invested in the markets. There is an urban legend that Fidelity did a study and discovered that the best performing accounts were those of people who forgot they had an account. Some interesting data points to prove that it is better to stay invested in the markets over the long-term:

  1. There are 2 investors who invested $10,000 in the S&P500 every year for 20 years from 1997 to 2016. Investor X has amazing luck and picks the best day (market low) of each year to invest and has an annualized return of 8.82%. Investor Y is the opposite and picks the worst day (market high) of each year to invest - even with his horrible market timing he has an annualized return of 6.58%. Both investors stayed the course for 20 years and didn't pull out of the markets - even Investor Y came out ahead despite picking the worst day to invest for 20 straight years. (Source: American Funds)
  2. If you invested $10,000 in the S&P500 on Jan 1, 1980, by May 31 2017 your investment would have grown to:

    $615,363 if you stayed invested all days;
    $398,407 if you missed the 5 best days;
    $296,743 if you missed the 10 best days;
    $54,174 if you missed the 50 best days.

    By trying to time the markets, you may miss the market's largest gains. (Source: Fidelity)
  3. The laws of physics do not apply here - what goes up may still go higher. When the MSCI World hit new highs over the last 50 years, investors would have made money if they hung on for another year. (Source: Financial Times)

Turn off your Bloomberg alerts. Keep your hand away from the big red button. We don't want to hurt your ego, but look at where we mere homo sapiens sit as a result of our frenzied timing and picking?

Source: Richard Bernstein Advisors
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