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At 6:32 PM -0400 7/22/02, 'Lucky Bastard' wrote:
>Can someone point me to the URL that leads to the University of Michigan
>study on Market Timing? Or the title of that study? The one where all the
>mutual fund pundits use to say that Market Timing doesn't work...that if you
>miss the 10 best days, your return doesn't beat buy-n-hold (the
>bag)....leaving out that if you miss the 10 worst days, you'd beat
>buy-n-hold (the bag)....and if you sell an X % from the top and buy X% above
>the bottom, you'd still beat buy-n-hold (the bag).
This study is widely quoted by brokerage companies as the reason people
should stay in the market no matter what. Hogwash...
I duplicated the study several years ago:
> Invest $1000 in the S&P 500 index fund in 1/5/70
> On 4/1/01 (7902 trading days later) it would be worth $11,839
(Average 8.2%/yr over 30+ years)
> Missing the best 1% (79) days would reduce value on 4/1/01 to $894 -
a loss of $106 over 30+ years. So missing the best 1% of days erases
all profits so you need to stay in the market - right? WRONG!
> Missing the worst 1% (79) days would increase value on 4/1/01 to
$206,445 (Average 17.8%/yr over 30+ years).
> What would the account be worth if we avoided all the down days
over the 30+ years? $1,894,433,971,569,410
The attached figure shows the result of sorting the 7902 days such
that the biggest gains occur first and the biggest losses occur last.
The reinvested profits build up to $1,894,433,971,569,410 then
decrease back to $11,839.
Conclusion: Market timing is incredibly effective but hard to do
without a good trading system...
Bob Fulks
Attachment:
Description: "Timing3.gif"
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