The point of the trivia is arguing against trying to time the market. Lots of people predict crashes are coming, so shift money from equities to cash or bonds. Unless you can time it perfectly (you can't), it is better to hold because you don't know when the best or worst days are.

I can attest. Beginning of covid: stocks are crashing, going down 10% every day, I read the paper from that uni in London that says we are going to be alternating light and heavy lockdowns for the next 12-18months. More than a year of lockdown? How can the economy survive this? I’m like: sell, sell, sell. Right when I sold the market went up like crazy and has more than recovered now.

Right and you probably do not follow the market very closely. Which is fine, that is most people. If you start watching it closely though (and I mean over several months to years) there are many patterns that emerge. I knew a lot of people that bought the dip last year. They weren't worried about how long it would take the economy to recover, or if it would go down further because they knew things were VERY cheap and it would eventually come up unless there was a global economic collapse at which point it wouldn't matter anyways.

Most I knew dollar cost averaged down. It paid off very well.

“Buying the dip” sounds brilliant in theory but it fundamentally requires holding on to cash outside of the market waiting for that dip to happen. An order of magnitude more gains have been lost waiting for dips that never come than have been made holding onto cash waiting for those dips.

I have a friend who sold it all in 2017 expecting the crash to come any day now. He’s still holding on to cash waiting for that dip. I’m sure in early 2020 he felt prescient and that this gamble would pay off. Only it didn’t, and he likely missed the one opportunity he had to minimize those lost gains. Not only does buying the dip require correctly guessing the bottom, but by definition you have to have the constitution to put it all in at the peak of bad market news.

Yes and no. There's buying the dip when you actually have the time and money to do a lot of this.

And then there's buying the Covid kind of dip. Personally I didn't sell early enough and I didn't buy back in early enough either. However I also never held onto lots of cash to buy the dip. I simply sold stock I had been holding for a very very long time already anyway, so yes I lost some opportunities but still made enough for it to be worthwhile.

Made up numbers for simplicity but if you have been holding for a long time and your return is 100%, if you sell when it say dips to 90% or 75% or whatever doesn't really matter as long as it then goes down further. That's why big dips like Covid are great for casual investors if you ask me.

Let's say it then goes down to 25% and then goes back up. You don't look every day, you don't trust it yet, because it's been going up and down in between but ultimately dropping down to 25%. But at some point it's been going 2 steps up, one step down for some time and you decide to buy back in at 50% of what your previous holdings had been worth at the peak. You still made a ton of extra money by selling and buying back into the dip.

Usually I'd say your correct. Like if I hadn't been laid off and decided to go back to school I would have had no problem buying the dip during the recession in 2008.

But last year could have gone very differently. The US (and the world in general) was tested in all sorts of ways last year in ways the people and the government are really not used to, and things probably should have gone a lot worse than it ended up going, but somehow the country made it through intact, although unfortunately with a lot of dead people and failed businesses.

It went well (for the stock market, at least) this time. Next time, maybe not, especially with climate change continuously getting worse with almost nothing being done about it.

For myself, I didn't bother selling any of my 401k (and kept putting money into it), so I didn't lose anything, but I did start putting spare money into other assets.

That assumes you have the time to make up for bad market years like that. If you're retired and you see the market tank like that, its hard to fight the urge to not panic sell

I agree that timing the market usually doesn't work. But it doesn't work in both ways. You are equally likely to miss or hit both good and bad days, with the same or similar impact on total return.

This is a guess based on anecdotes on recent volatile periods, the general scenario could be this:

1. Market falls sharply.

2. General public panic and sell, while market timers double down.

3. Market falls further, market timers panic and sell.

4. Markets rebound sharply, with the above-mentioned people missing those good days.

The key assumption is that at least some really good days usually follow really bad days.

50% of the time it works all the time

The author's colleague had a blog post on the topic, reasoning that missing either the best or worst was not a particularly interesting "what-if" since the best and worst days are both associated with the same bouts of higher volatility. He used the 200 day moving average to try and model the effect of 'missing' both. It honestly didn't turn out so bad, but one takeaway is that backtesting (aside from not being a necessarily great projection) does not model personalities.

https://theirrelevantinvestor.com/2019/02/08/miss-the-worst-...

If one is equally likely to miss both good and bad days, but overall the market is up 10%+ in a year (repeated over decades), then money left in the market will double every 7 years or so (Rule of 72 [1]). In that way it is almost always preferable to invest and hold in index funds.

The S&P 500 has returned about 13.6% return per year from 2010-2020 [2], or doubling your money about every 5.5 years. If that rate continues or increases then of course it makes no sense to try and time the good or bad days.

Of course, some will argue that a pure index fund market won't be priced correctly as it is active/day traders who continually buy and sell to set a proper market rate. If everyone buys and holds like Bitcoin then there is no true reflection of the companies value in the stock. Those that would go under otherwise may be buoyed or bought out just for their stock value. There are many opinion articles out there on the topic, but so far it hasn't been observed at scale (I think).

[1] https://en.wikipedia.org/wiki/Rule_of_72

[2] https://www.businessinsider.com/personal-finance/average-sto...

The good and bad days are not equally likely to be equally good/bad, though. Long-term, the market tends to rise; the good days will outnumber the bad in either quantity or quality.

But the analysis assumes you timed the market "perfectly" and sat out only on the 10 best days.

It’s such a fundamental contradiction you see it everywhere. The quote “buy low, sell high” says we should time the market. Even the classic “percentage of bonds to stocks should be your age” requires us to time the market. And if you just buy stock when you happen to have spare cash, that too is “timing the market.”

I would argue that the percentage of bonds should be your age is not timing the market in any meaningful sense of that phrase. (I also think that's too conservative an asset-allocation, but in any case "make a periodic rebalancing trade according to this preset formula" is the opposite of "time the market".)

I would argue that the distinction between periodic rebalancing and timing the market is subjective. Even if you aren’t trying to rebalance based on market conditions, ie selling at a high, the downsides of market timing are still there just the same. Just because you don’t care about the timing of your trades doesn’t mean the timing doesn’t matter.

By that logic, the initial investment timing matters as well, which is technically true of course but practically not particularly useful. If you want exposure to equities, you have to buy equities at some time.

The part about timing it perfectly is not true. You can time it, for example predict that the market will crash, shift your money to bonds now, the market goes up for another year and then dips below the level you exited at. At that point, you can shift back and you'd have made less money than someone who timed it perfectly but more money than someone who stayed.

>> And if you avoided the worst 10 days, your earnings double. If you avoided 20 worst days, your earning doubled again. >> What is the point of such trivia?

The point is -- it is hard to avoid/miss the 10 worst days since you dont know which ones they will be. It is easy to capture the 10 best days because the easiest thing to do is be invested all the time.

Isn’t it easy to miss the bad days because after it happens, you can buy stocks?

> What is the point of such trivia? That most of the profit or loss happens during the days of high volatility?

Simply that you shouldn't try and time the market, but continue to "buy and hold". The likelihood of picking these exact 10 or 20 days is near 0, so it's an irrational thing to do.

I'd politely disagree. The massive fall and recovery around March 2020 was easy to predict, so I did and made a handsome amount of money. I mean, if a small asteroid fell on an important trade route or if another serious pandemic began, would you seriously suggest to just hold the stocks?

Curious to learn more, if you don't mind sharing. I wrongly assumed things would get quite a bit worse than they were at the point when sp500 turned back up. How did you know that was the bottom? Fundamental analysis? Or were you buying continuously on the way down?

Well, I can't speak for the person you are replying to, but think about a company like this (in general) - has something changed such that the new price (usually a drop) makes sense?

Take Amazon - down 15% or something. The virus is there yet, but is Amazon really worth 15% less? Won't people shop online? There's no way Amazon is going bankrupt, and there's no way that the U.S. would let companies like this fail over the virus, so is it really worth 15% less?

You don't have to time the exact moment of the bottom, you just find it once you see double digit loses in extremely good and valuable companies who are pulled down with the market. Airlines? Yea probably wouldn't have been an ideal buy, though if you waited long enough you've rebounded on them. But it seemed pretty safe to buy the big tech companies, Berkshire, etc. when they were experiencing double-digit percentage market losses over a likely temporary phenomenon.

Now, was it possible that things would have gotten much, much worse? Yea. So OP and myself could have been wrong, but instances like this are a bit of informed gambling, if you will.

I did too, but I think that's besides the point.

Except it is much easier to participate in best days than avoid worst ones.

Participating in best days requires you to just have your money invested all the time.

If you know how to avoid worst ones, let me know. We are managing risk for one of the biggest banks in the world and would like to buy this intel for a bunch of billions of dollars.

the point is to remind folks that if you want to invest in the market safely, use index funds...otherwise, enjoy gambling

This "trivia" points out the flaw in the "long term average" argument: The stock market is occasionally so volatile that 40 days out of 34,675 have an inordinate effect on returns over those 34,675 days.

Over 95 years of trading, 0.12% of days account for far, far, far, far more than 0.12% of market impacts.

Yeah so what are you going to do about it?

What kind of argumentative nonsense comment is this?

The point is that of course there are the outlier days that disproportionately affect gains/losses, that doesn't invalidate the long-term average argument though unless you have some way of identifying those periods in advance. If you could do that then you A) would not tell anyone until B) the SEC came knocking at your door to explain how you turned $1k into $1B over a very short time span.

I think it's a legitimate question: we all have a large chunk of savings stuck in this game because of perverse incentives set by corrupt/inept US gov. Now what?

Hedge with options. You can even out the highs and lows, make your returns predictable with in a tight window and act accordingly.

I understood it as: HODL