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At 3:08 AM -0500 4/4/01, robert.cummings@xxxxxxxxxxxxxxxx wrote:
>This will make you think when trying to time the market with a mutual
>fund.
>
>"A University of Michigan study found that an investor trying to time
>the market between 1963 and 1993 who happened to miss the best 90
>days, or a little more than 1% of trading days, would miss out on 95%
>of the gains". Financial reporter Mary Rowland
I always find these studies amusing. The clear message is that
"market timing doesn't work so you sheep should stay in the market so
we can continue to shear you".
This is my version of the study. (See the attached chart "Gains.gif").
This analysis considers all of the daily gains of the SPX index since
1/1/1970 through yesterday (4/3/2001) This was 7901 trading days.
Investing $1000 in this index and staying in the market full time,
our $1000 would now be worth $11,838.75 (not counting dividends).
This is an average gain of 8.24% per year.
WOW! So much for buy/hold!
But if you sort the daily gains from highest to lowest and calculate
what would have happened if the gains actually occurred in the sorted
order you get quite different results. The attached chart shows the
account value vs. time on a logarithmic scale. It looks like a half
circle reaching a maximum value of $1,894,433,971,569,410.
So if we were in the market only on the days with gains and out of
the market on days with losses, our $1000 would be worth
$1,894,433,971,569,410 today.
This would be an average annual return of 147.25% per year.
If we were lucky enough to be in the market on only the best 74 days,
our total gain would be the same as it has been by staying in the
market over all those years.
If we were lucky enough to has been out of the market on only the
worst 74 days, then our account value would be $177,967.94 today.
So it is clear to me that the potential of market timing is enormous!
The problem is how to accomplish it effectively...
Bob Fulks
Attachment:
Description: "Gains.gif"
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