In front of the buying and holding strategy (buy & hold) is the market timing. Its philosophy is based on finding the best time in the market to put money, usually through tools such as technical analysis, which looks for different ways to determine when a certain value or index will change its evolution.
However, although it is a widespread strategy among investors, the truth is that anticipating what the stock market will do is a very difficult task, especially in the short term, when the market is very volatile. Otherwise, any investor could become a millionaire simply by identifying the profiles that lead to a change in trend.
In general, numerous studies indicate that investors who try to guess when the next market trend will occur get, on average, between 1 and 1.5% less than those who simply maintain their long-term investment. And depending on the type of asset and geographical area, this range moves between 1 and 6%.
How much do you lose if you miss the best days on the market?
Profitability is significantly reduced if you miss one or more of the best days on the market. This study shows what happens when you try to figure out what the market is going to do and miss the best days.
Well, when you miss the 30 best days of the market, your long-term annual profitability becomes negative and if you miss the 60 best days, your profitability is reduced to -5.76% annualized.
However, it should also be borne in mind that many of the largest increases in the main indices are concentrated in times of high volatility due to economic crises and periods of financial instability. Thus, if we take the maximum rises and falls of the S&P 500 during the last 15 years, these are concentrated in a few days.
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