What difference can missing one or two days in the market make in your returns? I downloaded the closing prices of the Russell 2000 index from March 19, 2001 to March 19, 2016 (trailing 15 years). The facts show that missing that one big day of the year makes a tremendous difference.
Looking at $10K invested on 3/19/2001 the following are your returns after the 15 years if you were fully invested and never missed a day, and if you missed the biggest one day each year, and if you missed the 2 biggest days, and so on…
Fully In missed 1 day 2 days 3 days 4 days 5 days
$24.4K $12.6K $0.7K $0.42K $0.26K $0.16K
That’s right. If you missed that 1 day each year you lost HALF of your return. Missing the two biggest days each year you now lost ALL of your returns and in fact are DOWN 30% !
So when the market tanks, you get scared and sell, and then it pops up one day, and you decide to get back in so you don’t miss the whole recovery, it can really cost you. All the chart reading skills in the world won’t tell you what is that one day of the year that will be the biggest jump up. In fact, the chart followers usually wait for that jump to cross a line so they have confidence to go back in to a stock.
The following are the one day percentage gains that were the highest of the annual years starting 3/19/2001 to 3/18/2002 (I labelled that Year 2001 below). We aren’t talking big numbers here, but the compounding adds up.
Hi Saul. That is because my $0.7K should be $7K - those 2,3,4,5 days are off a decimal. I’ll repost with the correction. I’m really messing up this post…
What difference can missing one or two days in the market make in your returns? I downloaded the closing prices of the Russell 2000 index from March 19, 2001 to March 19, 2016 (trailing 15 years). The facts show that missing that one big day of the year makes a tremendous difference.
Looking at $10K invested on 3/19/2001 the following are your returns after the 15 years if you were fully invested and never missed a day, and if you missed the biggest one day each year, and if you missed the 2 biggest days, and so on…
Fully In missed 1 day 2 days 3 days 4 days 5 days
$24.4K $12.6K $7.0K $4.2K $2.6K $1.6K
That’s right. If you missed that 1 day each year you lost HALF of your return. Missing the two biggest days each year you now lost ALL of your returns and in fact are DOWN 30% !
So when the market tanks, you get scared and sell, and then it pops up one day, and you decide to get back in so you don’t miss the whole recovery, it can really cost you. All the chart reading skills in the world won’t tell you what is that one day of the year that will be the biggest jump up. In fact, the chart followers usually wait for that jump to cross a line so they have confidence to go back in to a stock.
The following are the one day percentage gains that were the highest of the annual years starting 3/19/2001 to 3/18/2002 (I labelled that Year 2001 below). We aren’t talking big numbers here, but the compounding adds up.
Dude, I’m in awe at your number-juggling. It would not even have occurred to me to examine what happens to an investment by missing the biggest day of the year, let alone executing it over a 15 year time span.
But, I kinda knew it was best to stay fully invested without the exercise. I must admit though, I really like having the numerical evidence. It moves the notion from an intuition or opinion to a fact.
Thanks Brittlerock. Excel really has a lot of tools these days to help you analyze data. I’ve heard the statement before that the big day jumps are key, but never realized just how important they are.
Saul - to further increase the accuracy I should not have said you lose HALF of your return. You have about HALF the amount of money, but by being out the 1 biggest day each year you actually lose 82% of your gains.
$10,000 turns into $24,400 fully invested with $14,400 gained.
$10,000 turns into $12,619 missing one day a year with only $2,619 gained.
Data doesn’t lie, but they can be misinterpreted just like stock charts.
I’m not a market timer, and I’m 93% invested currently. While this is interesting analysis to be sure, it is one-sided. I’m sure a market timer intends to miss more down days than up days. It might be more appropriate to include what happens if you miss the biggest down day, or if you always miss from a 10% drop until the next 10% rise, etc. I think Neil did some backtesting of this type a few months ago. Cheers.
The facts show that missing that one big day of the year makes a tremendous difference.
That sounds interesting but without a corresponding analysis of the worst days it really is incomplete.
I had a surprisingly hard (and frustrating!) time trying to download historical index data. I found nothing for Russel 2000, and I had to grab S&P 500 data page by page with copy/paste so I only looked at 2015. That is obviously inadequate, but looking this one year does suggest more research is required before waving the “one big day” flag too energetically.
In 2015 the two largest changes were 24 and 26 August. While they are almost the same, one is a wee bit larger, the negative one.
Date Close Change
24-Aug-15 1,893.21 -3.94%
26-Aug-15 1,940.51 3.90%
Perhaps someone with a complete set of data would like to fill in the missing pieces?
The data is only looking at market gains.
Do you think the case for staying fully invested would need to
include the first days of a market declines as well?
Overall, the markets have risen - and earnings have risen overall.
If you are considering momentum - the herding approach - isn’t the
falling knife as important as the rising tide?
I’ll admit it is a quick and dirty look at answering the question with facts. The point is by just missing 15 days out of the last 3,699 days of trading (the 15 years I looked at) turns your gains from 144% increase to only a 26.2% increase. You never know when you are out of the market if that day is going to happen. And by the way, this is for an index of 2,000 companies. I would imagine the change would be significantly higher with a much smaller set of 15 to 30 high growth companies.
RHinCT - I just used ‘Yahoo Finance historical prices Russell 2000’. If you put that into google the first link is:
And since there was some questioning of this approach, I did about 5 minutes of looking for articles that must have been written on this topic and my first find shows the same thing for 20 years of S&P500 that is very close to the results I calculated.
We’ve been hearing lately ‘charts don’t lie’ as evidence that we should have all our money on down trends sitting on the sidelines waiting for the up trend. I was just curious if this exercise would have shown that missing a few good days while I wait out market gyrations and protect my money might be a better approach. I thought I’d share the results and my conclusion. I think the market requires all these different approaches to investing. If we all invested exactly the same way the market wouldn’t work.
Thanks for the pointer to the downloadable Russel history! I will have to remember that Yahoo has the edge there over my broker and Google.
I downloaded and analyzed the Russel data going back through 2000, for each year finding the best and worst days based on percent change. The lines marked as Max! favor the idea that missing the best day of the year matters more than missing the worst day of the year. The reverse for the Min lines of course.
Year Min Max Greater?
2016 -3.30% 3.20% Min
2015 -3.90% 2.92% Min
2014 -3.21% 3.11% Min
2013 -3.78% 2.83% Min
2012 -3.20% 2.91% Min
2011 -8.91% 6.94% Min
2010 -5.09% 5.61% Max!
2009 -7.03% 8.40% Max!
2008 -11.85% 9.27% Min
2007 -3.97% 3.97% Tie!
2006 -3.19% 3.82% Max!
2005 -2.84% 2.40% Min
2004 -2.77% 2.55% Min
2003 -2.90% 3.11% Max!
2002 -4.12% 4.85% Max!
2001 -5.23% 4.74% Min
2000 -7.26% 5.84% Min
Everyone can draw their own conclusions, but what it says to me is that the “skip the best day of the year” analysis is cherry picking one event while ignoring another of equal or perhaps greater importance.
Thanks for the pointer to the downloadable Russel history! I will have to remember that Yahoo has the edge there over my broker and Google.
I downloaded and analyzed the Russel data going back through 2000, for each year finding the best and worst days based on percent change. The lines marked as Max! favor the idea that missing the best day of the year matters more than missing the worst day of the year. The reverse for the Min lines of course.
Year Min Max Greater?
2016 -3.30% 3.20% Min
2015 -3.90% 2.92% Min
2014 -3.21% 3.11% Min
2013 -3.78% 2.83% Min
2012 -3.20% 2.91% Min
2011 -8.91% 6.94% Min
2010 -5.09% 5.61% Max!
2009 -7.03% 8.40% Max!
2008 -11.85% 9.27% Min
2007 -3.97% 3.97% Tie!
2006 -3.19% 3.82% Max!
2005 -2.84% 2.40% Min
2004 -2.77% 2.55% Min
2003 -2.90% 3.11% Max!
2002 -4.12% 4.85% Max!
2001 -5.23% 4.74% Min
2000 -7.26% 5.84% Min
Everyone can draw their own conclusions, but what it says to me is that the “skip the best day of the year” analysis is cherry picking one event while ignoring another of equal or perhaps greater importance.
There is definitely an “other side of the coin” to be looked at.
Slightly different methodology here–just looking at the 10 best and worst days since 1950–but an investor who stayed out the whole weeks that included the 10 best days would actually come out better than someone who stayed in the whole time.
Theoretically, if an investor would have just stayed out of the market for the whole week, where one of those best days have had occurred, he would have had a great chance to miss one of the worst days as well. In total, such an investor would have ended up with a portfolio worth $23,057, compared to just $16,212 for the one that had followed a buy and hold strategy!
Given that market volatility is increased during bear markets, it makes sense–many of the “best days” are probably dead cat bounces during bear markets.
The results show this is better than buy and hold!
The whole point of “timing” strategies is avoiding a lot of those down days (while understanding some of the best days will also be missed). The point isn’t to try and pick the exact top or bottom. So, any victory dance to say, see, “it’s best to stay fully invested” is a little disingenuous, and not actually accurate.
Now, I concede there is no holy grail timing strategy with outsized gains (or there wouldn’t even be a debate). However, there are disciplined and mechanical ways to avoid big drawdowns in one’s portfolio without losing the average gains of the market. Some make trades once a month or even just once a year, and most are actually in the market 70-80% of the time. Such techniques should not be so quickly dismissed and I assume might be of interest to someone in or near retirement. See the Mechanical Investing board for more insight.
Whether the biggest one day gain is greater than the biggest one day loss or vice versa is not relevant to portfolio performance unless one is only in the market two days a year, each one perfectly timed to hit those days. The results originally posted for missing the best one or two or whatever days assumed that one was in the market the rest of the time, i.e., through those down days. The point of the exercise was not how well one could do with perfect market timing or with one day investments, but just how much of the market’s overall performance one could miss by timing that might cause one to miss those best days.
Again, Carpian, the assumption is of perfect timing, which has nothing to do with the real world. The meaningful comparison here is between being in all the time vs following some rule for getting in and out. A rule that is based on looking back is useless in the real world.
I saw it as a straw-man argument, taking half a story and drawing unwarranted conclusions. The conclusions may be correct, but the case being made is too full of holes to be worth using as confirmation.
Thanks everyone for the analysis and thoughts.
Here is my take, it’s hard to avoid the big drops, if there is a way to do that, I truly appreciate it if you are willing to share. But, if you stay invested, you are guaranteed not missing the big gains. So, in reality, imho, it will be better off staying invested. At least, in my case.