27 June 2008
Don’t miss the market
I’m sure you’ve read the statistics regarding stock investing that say that it is imperative to stay in the market through the ups and downs because if you try to time the market then you are likely going to miss some of the best days in the market. I found an interesting article that discusses this from Will Hepburn. I’m not going to say that I agree with the article fully, but it is at least an interesting theory.
Historically the market has returned over 10% per year on average. But if your money was out of the market for just the 10 best days, your return would be closer to 7%. Miss the 20 best days and you’re looking at only 5%. Miss the 40 best (less than 8/10ths of a percent of the days in this study), and you can expect 1.6%.
One additional point that I would like to make is that this assumes that you actually sell your stocks and take your money out of the market. Obviously, most of us don’t cash in and out of the market fully on a daily basis. With fees and complexities, this just doesn’t make sense. This study is just meant to make a point. Just because one of your stocks falls 10% on a particular day, don’t bail on it necessarily. Take a look at why this happened, the short and long-term future of this company and then make an informed decsion. An informed investor will shuffle their portfolio, but not try to time the market daily. If you see a bleak future (or none) for a company, then sure take your losses and get out while the getting out is good. Look for another company that has a great potential or is in a current slump but has solid financials.
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If you like, or can at least stand to read what I write,
make sure you add my RSS Feed to your list so you don't miss a single post.
If you have no idea what I'm talking about, read this.
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