Two opposing strategies:
- Time the market. Try to buy before rises, sell before falls.
- Time in the market. Stay invested; don’t try to predict.
The first sounds smart. The data says the second wins dramatically. Today’s lesson is the numbers.
The core finding
From multiple studies (Dalbar, JPMorgan, SSGA) of major markets over 20+ year windows:
Missing the 10 best days of a 20-year period cuts your cumulative return by roughly 50%.
Missing the 20 best days: return drops by ~70%. Missing the 30 best days: return drops by ~85%.
Those “best days” are often clustered near the worst days (during volatile periods). So trying to avoid the bad days by selling typically means missing the good ones.
JPMorgan’s analysis
JP Morgan’s Guide to Retirement, updated annually, consistently shows:
For the S&P 500, 2004-2023 (20 years):
| Scenario | Annualized return |
|---|---|
| Fully invested | 9.7% |
| Missing 10 best days | 5.5% |
| Missing 20 best days | 2.6% |
| Missing 30 best days | 0.3% |
| Missing 40 best days | -1.8% |
Sitting out 40 of 5,040 trading days (0.8% of the time) turns a positive 9.7% return into negative -1.8%. And those 40 days aren’t predictable in advance.
Why the “best days” cluster
The best days historically cluster around the worst periods. Some examples:
- October 2008: S&P 500 had some of its worst days. Also the best rebound days.
- March 2020 COVID crash: worst days and best days in the same month.
- 2022-2023: volatile period with extreme moves in both directions.
If you panic-sell during a crash, you miss the subsequent rebound. You lock in losses and miss the recovery.
Explanation: during panic, stock prices overshoot downward. When panic recedes, prices snap back. The best days are often part of the bounce from the worst.
The cost of trying to time
Academic studies of market-timing strategies (both retail and professional) consistently show:
- Professional market-timers (tactical allocation funds) rarely beat buy-and-hold after fees.
- Retail market-timers do worse — they sell on the way down and buy on the way up, systematically.
- Even if you could correctly identify 3 of 4 “bad years” in advance (impossible for most), the cost of the wrong calls eats the gains from the right calls.
Italian market specific
FTSE MIB 1998-2024:
- Full period buy-and-hold with dividend reinvestment: modest positive total return, roughly 2-3% real annualized (underperformed global due to Italian economic stagnation).
- If you’d missed the best 20 days: substantially negative total return.
- Sorry spot for Italian market: even staying invested barely kept up with inflation. But timing made it far worse.
Compare to MSCI World same period: buy-and-hold ~7% real. Missing the best 20 days: ~3% real. Both positive, but huge gap.
The “smart timers” myth
Some claim they’ve “timed the market successfully.” Look carefully:
- They reference specific good calls. Rarely do they report the full track record including bad calls.
- They compare to a worst-case passive strategy (“I outperformed someone who held through 2008 and 2020”), not the actual passive benchmark.
- Their sample is short. One good call can look like skill over 5 years. Over 20, it doesn’t.
Survivorship bias is real: the market-timers who lost badly don’t publish their results. You only hear from winners.
For every retail investor who timed successfully, dozens failed silently.
The practical response
Given all this, two rules:
1. Stay invested
Once you’ve invested, don’t sell based on market-timing intuition. Hold through crashes, recoveries, everything.
2. Invest consistently
If you have new money to invest, invest it. Don’t “wait for a better time.” The math of lump-sum vs PAC (lesson 38) strongly favors investing, not waiting.
Dollar-cost-averaging during crashes
One circumstance where action helps: during a crash, keep your PAC running. Your regular monthly contribution buys more units at lower prices.
2020 March: markets down 30%. If your PAC kept running, you bought heavy that month. Those units recovered 80% by August. Great outcome for the disciplined.
If you paused or canceled PAC: you missed the recovery buy.
”What about rebalancing?”
Rebalancing isn’t market-timing. It’s restoring your target allocation. If stocks fall to 60% of your portfolio (target 75%), buying more stocks to bring it back is disciplined, not speculative.
Lesson 37 covers this. Rebalancing is allowed and beneficial. Tactical over/underweighting based on market predictions is not.
When might you actually time?
Niche scenarios where careful timing might make sense:
-
Large windfall. A €1M inheritance. Worth phasing in over 6-12 months vs lump-sum to reduce timing regret. Math cost: ~1-2%.
-
Near-retirement rebalancing. Reducing equity exposure as you approach needing the money — this is risk management, not timing.
-
Tax-loss harvesting. Selling losers near year-end to claim the loss. Not market timing; tax planning.
For normal investing, don’t try.
The “I’ll wait for the next crash” trap
Common thought: “I’ll hold cash for the next crash and buy then.”
Problems:
- Waiting for a crash may mean years of missed gains. Markets rise 70-80% of years.
- When the crash comes, you might be too scared to actually buy. Most people aren’t.
- You have to successfully identify the bottom (you can’t).
- And then you have to re-deploy the cash into equity (the same decision as lump-sum today).
Empirical: retail investors who say they’ll “buy during crashes” usually don’t. Too scary when the moment arrives.
Better strategy: stay invested, PAC through everything. Don’t try to be clever.
The Italian 2008 story
Aggregate data from Italian mutual fund industry 2008-2011:
- Equity fund outflows (retail selling) peaked in Q4 2008 and Q1 2009. Exactly at the market bottom.
- Equity fund inflows (retail buying) peaked in 2013-2015. After the recovery.
- The behavior was systematically inverse of what a rational strategy would dictate.
Italian retail investors collectively underperformed the buy-and-hold return of their own investments by several percentage points per year during this period. Same assets, worse outcome, because of behavior.
The “just the 10 best days” intuition
Run the math yourself (or use the embedded calculator on this page).
€10,000 invested in S&P 500 index, 1999-2023 (25 years):
- Fully invested, reinvesting dividends: ~€72,000.
- Missing the 10 best days in that period: ~€33,000.
That’s not a small difference. That’s half your retirement vanishing because you panicked once.
The hard question
“What if I really, genuinely can’t sleep through a 40% drawdown?”
Answer: reduce your equity allocation now, while markets are calm. Hold more bonds, less stock. Yes, you’ll earn less over the long run. But you’ll actually stay invested, which is worth more than having a theoretically optimal portfolio you’d abandon.
The portfolio you can stick with always beats the portfolio you can’t.
What to do with this lesson
Three things:
- Commit now to not selling during crashes. Write it down. Read it when tempted.
- Keep PAC running through everything. Even during 2020-style crashes, especially then.
- Size equity to what you can stomach. 60/40 you hold > 100% stocks you abandon.
Sources
- JP Morgan — Guide to Retirement.
https://am.jpmorgan.com/us/en/asset-management/adv/insights/retirement-insights/guide-to-retirement/. - Dalbar QAIB — annual investor behavior study.
- Dimson, Marsh, Staunton — Triumph of the Optimists, 2002.
- SSGA (State Street) — Staying the Course analysis.
Next lesson: why you feel losses more than gains — prospect theory in detail, and how this asymmetric pain wrecks rebalancing discipline.