If you read financial news, magazines, books, etc. you have probably read about the negative effect that missing the 10 best days in the market will have on your portfolio’s performance. There are numerous “studies” available which detail how much lower your portfolio return would be if you missed the 10 best days to be in the market. All the more reason for a buy-and-hold strategy and not to engage in market timing they tell you. What a pile of bunk!
I determined the ten best days for the Nasdaq from June 01, 2000 to October 31, 2008 (corresponding with my equity curves here). The ETF2X timer had us out of the market for four of these days so let’s consider what happened when we were out of the market. The ETF2X timer took us out of the market on September 19, 2000 and got us back in on January 22, 2001 and we therefore missed a 10.5% increase in the Nasdaq on December 05, 2000. Well, being out the market wasn’t such a bad thing since the Nasdaq lost 28.7% from September 19, 2000 to January 22, 2001.
On another instance, the ETF2X timer had us out of the market from April 26, 2002 to October 25, 2002 and we therefore missed a 7.8% jump in the Nasdaq on May 08, 2002. Following the ETF2X timer would have been a good thing since the Nasdaq lost 20.0% from April 26, 2002 to October 25, 2002.
The other two instances of high daily returns for the Nasdaq while we were out of the market occured last month. The ETF2X timer took us out of the market on June 11, 2008 and the Nasdaq is down 28.1% since then.
In not one single case were we worse off by following the ETF2X timer and being out of the market on one of the best 10 days for the Nasdaq. The next time you see an article which touts the benefits of a buy-and-hold strategy because of the ill effects of being out of the market on the top ten days, you can smile since you know better.
Top 10 Days for the Nasdaq
