What's The Impact On Your Portfolio?
Missing The 10 Best Days
Would missing the 10 best days in the last 20 years have a negative impact on your portfolio?
One of the standard arguments against attempting to time the market says that if you missed the 10 best days in the last 20 years, the long-term value of your portfolio would be significantly less than if you had just stayed the course. Using price data from the Standard & Poor's 500, I decided to find out if this argument was really true. Rather than limiting the search to just the 10 biggest one-day gains in the last 10 or 20 years, I tracked down the 20 biggest gains in the last 50 years (Figure 1).
FIGURE 1: THE 20 BEST DAYS IN THE S&P 500 FROM 1955 TO 2005. Here you see the 20 biggest gains in the S&P 500 over a period of 50 years.
HERE'S WHAT I FOUND
The largest one-day gain in the last 50 years was a huge 9.1% leap. The day before that was remarkable too. It was the fourth-largest one-day move, causing the market to jump 5.3%. In just two days the market blazed upward beyond 14%. Those two days were Tuesday and Wednesday, October 20 and 21, 1987. But in order to be in the market to capture that windfall, the odds were high that you were also in the market on October 19, when the market dropped more than 20% in one day.
The second-biggest one-day jump was a tidy 5.7% gain on July 24, 2002. This day was also surrounded by other big gainers: the third biggest, July 29, 5.4%; the 20th biggest, August 14, 4%; and the 12th biggest, October 15, 4.7%. In a matter of a few months, those four days alone carried the market forward nearly 20%. Of course, it should be noted that at the time, the market was trying to recover from a disastrous 45% drop from the market peak in August 2000.
Fifth on the hit parade occurred on October 28, 1997, carrying the market up 5.1%. This would have been great news in any case, but it had special meaning to the buy & hold advocates because on the previous day the market had dropped 6.9%. The sixth largest happened on September 8, 1998, and didn't fare much better. On that day the market climbed 5.1%, but this was a recovery from a big drop a few days earlier when the market fell 6.8% on August 31.
...Continued in the April issue of Technical Analysis of STOCKS &
COMMODITIES
Excerpted from an article originally published in the April 2008
issue of Technical Analysis of STOCKS & COMMODITIES magazine. All rights reserved. © Copyright 2008, Technical Analysis, Inc.
Return to April 2008 Contents