I read a tremendous amount of research as I should as portfolio manager on behalf of my clients. Some is good, some is bad, some is wrong and others are what I like to call Wall Street propaganda. Having worked at 4 large financial institutions in my career, I’ve seen this propaganda take many shapes through the years. I recently was sent a research report from a well known asset manager (that shall not be named) which was perpetuating a myth I have seen my entire career in wealth management. This myth is regarding missing the best 10, 20 and 30 days in the market. As the myth goes (and is perpetuated), if you missed the 10 best days over the prior 25 years in the market (S&P 500), you would have earned approximately 50% less than if you stayed invested. If you missed the 20 best days, you’d have 69% less. And if you missed the 30 best days, you’d have a whopping 79% less than if you just stayed invested. While the math is correct, it’s completely misleading.
These statistics were probably created by some crafty marketing department after one of the market downturns; most likely to spin why you should continue to work with their firm’s brokers since they’ll be unemotional and keep you invested in dark times. I would argue that remaining unemotional is valuable only if you’re actually providing value. Furthermore, allocations tend to change over time as clients age and risk tolerance changes. I have also found that risk tolerances tend to change at exactly the wrong time and usually after someone has experienced a steep drop in the value of their investments.
What they fail to tell you about the above statistics is that the best 10, 20 and 30 days in the market often come after significantly larger drops in the market! If your advisor had to foresight to reduce your stock exposure or better yet, reduce it completely, you would have earned significantly more than the market even though you missed the 10 best up days simply because you avoided the majority of a significant downturn. Take a look at the chart below which shows the 20 worst days in the S&P 500.
The worst day in the S&P occurred on 10/19/1987, AKA, Black Monday where the market fell over 20% (right column). If you look at the left column though, the third best day in the market occurred on 10/21/1987, two days after Black Monday in which the market rallied 9.10% which would still leave you down 13% in dollar terms. The best gain the market recorded was 10/13/2008 during the financial crisis. While you would have earned 11.58% that day, you would have then experienced a 32% drop from that day until the market bottommed on March 9, 2009. If you look closely, 8 out of the top 20 best days in the market occurred before the market bottom during the last financial crisis. During the entire financial crisis, the market recorded 10 out of the 20 best gains that’s ever occurred. The fourth largest gain recorded in the market happened only a few weeks after the market officially bottomed and would not have gotten you close to break-even had you bought stocks within the previous 12 years! That day on 3/23/2009, the market closed at 719.60. You could have purchased the market at almost the same exact price on 12/16/1996!
This is why it’s critically important to question the statistics, research, investment methods and propaganda of the Old Wall Street Establishment. And for those of you that understand our process, this shouldn’t be a big surprise since you know exactly how our process works and how we’re positioned today. Process and execution are the two most important components of a successful investment strategy which we believe we have fine-tuned and will continue to improve.
As always, please direct any questions to me via email or phone.
Best Regards,
Jared Toren
CEO & Founder
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