Episode 5: How Hard is it to Invest? Buy Low and Sell High, Right? - The Myth of Market Timing
Due to the recent market volatility, some people have asked us: why didn't you sell AAA when it hit $80? Why didn't you buy BBB when it collapsed to $1? Market timing sounds simple enough, but can it be done? Per JP Morgan Asset Management, did you know that from Jan. 3, 2000 to Dec. 31, 2019 (~almost 20 years, 5040 trading days total), if you were fully invested in the S&P 500, your performance would be a +6.06% annualized return; if you missed the 10 best-performance trading days, your return would be +2.44% annualized; and if you missed 60 best-performance trading days, your return would be -7.02% annualized. How crazy is that! Whoever tells you that he/she has the ability to pick those 10 or 60 days out of 5040 days and time the market correctly, is either lying or high. As Tim said, yes you may have a friend that has "timed the market" successfully in the past (for example, they bought lots of cheap but valuable stocks back in 2008), but what you don't know is that that friend may have done some very boring but thorough financial planning before 2008, set up their goals, and continued to save money every month. That made it possible for them to take advantage of the 2008 financial crisis. Their success is due to what they had donebefore2008, notin2008. Nathaniel summed it up perfectly: market timing doesn't work; it's luck, not skill.