Market timing
Market timing means jumping out to dodge a fall and back in before the recovery, and it is far harder than it sounds because the best days and the worst days tend to arrive close together.
The evidence
Recurring studies of the S&P 500 by J.P. Morgan find that missing just the 10 best days over a roughly 20-year stretch cuts the ending value by around half, compared with staying invested the whole time.
Why the best and worst days cluster
Many of the market's best days happen within days or weeks of its worst ones, often right in the middle of a crash, when fear is highest and selling feels safest. A plan that gets you out after the fall often gets you out just before the rebound.
A worked comparison
An investor who stays invested earns the market's full compounded return. One who sells after a scary drop and waits until things "feel safe again" tends to miss much of the recovery, because by the time it feels safe, most of the rebound has already happened.
Why simple rules fail unevenly
A rule like "sell after a 15% fall" can work in a long, slow decline, giving time to get out. It tends to fail badly in a sharp crash that falls and rebounds within weeks, which is exactly the shape many of history's worst and best days share.
Key takeaways
- Missing just the 10 best days over 20 years has historically roughly halved the ending result.
- The best and worst days tend to cluster together, often inside the same crash.
- Simple sell rules can work in slow declines and fail in sharp, fast ones.