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 done before 2008, not in 2008. Nathaniel summed it up perfectly: market timing doesn't work; it's luck, not skill.
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 done before 2008, not in 2008. Nathaniel summed it up perfectly: market timing doesn't work; it's luck, not skill.
spk_0: 0:02
welcome to critical thinking required. Hosted by lbw. Our goal is Simple way. Want to challenge you to think differently about finance and business, Join us and start the journey today. Welcome back to critical thinking required your with your hosts myself, Tim Bickmore and my two colleagues, Nathaniel Each and Dan Weiss. And today we want to talk about market timing. We want to talk about market timing, obviously within the stock market. But we also want to discuss a little bit about how it could be related to financial planning as well. And I think to start this podcast off, we're gonna talk a little bit about some data. And what we've done is we've taken a slide from J. P. Morgan's Guide to the Markets. The update this on a monthly basis, and it's some really interesting stuff, So bear with me while I read through it. I know sometimes it's get a little boarding when we talk about data, but we really do think it's important. So what we're looking at is a performance of a $10,000 investment between the timeframe january 3rd 2000 and December 31st 2019 so roughly 20 years. And if you were fully invested meaning you did not get out of the market in that time frame, your return would have been 6.6% annualized. So year over year, if you just miss the best 10 trading days, you're a turn would be two
spk_1: 1:27
point or four
spk_0: 1:28
percent. And if you missed just the best 60 days training days, then you return would've been negative 7.2%. So again over a 20 year time frame. If you were out of the market for 10 days, your return what, you would have lost almost 4% annualized year over year just by not being in the market for those trading days. So that's where we're gonna start off with. And I'm gonna kick this over to Nathaniel, and he's gonna talk a little bit about that chart and maybe provide some thoughts from the stock market perspective.
spk_2: 2:07
So I just wanna hit on that bet 10 trading days. So on a 4% annualized basis that Tim, if you could tell me from that chart s O a $10,000 balance fully invested, that equals approximately what $32,000 you'd end up with over the 20 year time frame.
spk_0: 2:23
But yes, you're correct. $32,421.
spk_2: 2:26
Okay, And then for the the next best, the 10 trading days. How many dollars are there? What's the difference there?
spk_0: 2:34
So you're looking at 16,180.
spk_2: 2:38
Okay, so if you're so 10 trading days so there's 252 trading days in one year. So over a period of 20 years, that's about 5040 trading days total. So 10 trading days out of the 5040 is equivalent to a little bit shy, a 2% of all trading days. What is so sad? I'm sorry. 10 days is just shy of 100.2%. So let's just try a 0.2% of all trading days. And you missed those 10 trading days, and you are left with half half of your money by not sticking it out for those 10 days. So I'm I'm asking, I'm and this is not rhetorical in any sense. Anybody who's listening to the if you think that you could time yourself to just stay in the market and captured those 10 best trading days and make out like a bandit. I dare you, I dare you contact us and tell us that you did it.
spk_0: 3:41
So Thio kind of build off of that within also the slide deck, it states six of the best 10 days occurred within two weeks of the 10 worst days. And the best day of 2015 which was August 26th was only two days after the worst day, August 24th.
spk_2: 4:05
So I would be willing to bet that most people didn't have the Kony's to be invested in those days because they're probably scared from the prior trading experience. And I think that's where I think that. Then you said that you had some interesting facts on that when it came to the most recent, um, volatilities in the market since the beginning of this year.
spk_1: 4:27
Yeah, even more reasons than that. There was an article that I was reading today. Article is the ah CNBC article that was written or published, I say on Thursday, which would have been the last trading day of the week because of Good Friday last week article titled Stock Market Live Thursday Among best weeks in history, Dow and S and P 500 jumped 12%. Thank the fad. I'll come back to that piece, but just kind of give you the summary of what happened in just last week is last week. The absentee that week closed at a 12.1% gain, which would be the best week 1974 and the Dow. The Dow. The Dow Jones industrial average had its seventh best we ever in the 135 years that that now that that Dow has actually been around now that keep in mind that 1030 entities, right, 3 30 businesses. But, um but wow, you know that there was something else I read maybe a week or so go to that quote that I thought was really interesting. I might butchered a little bit here, but basically the quote was, the bottom of the market is the day before things go up. Um, and I think there's some truth to it. And maybe this is a good time to talk about, really the mind set and how there's actually how we've seen. It's not just inside the market, but other places, too. Problem is just like this article stated. Who knew that the Fed was going to release such a package?
spk_0: 6:02
What's interesting about all this data is a lot of this is obviously related to the stock market. Ah, and a lot of people have asked us in the recent weeks, you know, how do we take advantage? And we talked about that in one of our podcast, and I think that, you know, and I love to get nothing on Dan's thoughts on this as well. But I really do think it comes back to positioning. I know we sound like a broken record. We are the three guys that say the same thing, probably over over and over again. But it really does, because you can't time the market. So when we're talking about investing in the stock market, dollar cost averaging, statistically speaking, is the best route to go, which means making consistent contributions month over month, quarter after quarter, year after year, and you just grind it out and you take the ups and you take the downs. But you have to be comfortable knowing that it's gonna go up and down, and one way to feel comfortable with that is to make sure you have an emergency phone on that. It's not all your cash that you are putting it in inappropriately that you haven't leverage yourself to be able to be in the market, right, So it's positioned yourself to know that you can actually ride the market. It's, you know, I guess it's a good analogy. Be is, if you're gonna go down a slide, would you go down naked and make sure that you slide down and you get stuck right? Like that would hurt That would burn? No, you put a shirt on you make sure that you have whatever you can so you can go down the slide nice and smooth and hit those turns. The same thing with the stock market is you need to be prepared to know that it's gonna be ups and downs and twists and, you know, going around in circles. So it's very interesting, and I think that, you know, and then we talk about it a lot from a branch. Planning is, it's not just a stock market now is what people are also asking us is where's the housing market
spk_1: 7:42
going to be? You know,
spk_0: 7:43
Where can I take advantage of, you know, buying a new house or doing a new remodel? Is it gonna be depressed like 2008? You know, I was on a zoom conference like everybody is doing these days with my extended family on my dad's side, and one of my cousins asked a very good question. A very valid question, he said.
spk_1: 7:59
You know, he
spk_0: 7:59
asked, Essentially, where do you think the Solich City real estate market's going to be in the next 6 to 12 months? Given Kobe 19 and the economic situation? And that's a That's a fair point. Um, my answer to it is that I think when you really start looking at where is the real estate market going to be? I think in the United States, but really primarily where you where you live. Because I I am a big believer that real estate is very hyper localize, that you really need to know the streets, the neighborhoods and prices conflictual depending on that. So it's hard for me to know, to be honest, where the Salt Lake market's gonna be excitement live there. I do have get information from family members but outside of that, and not their day to day Madison market. Yeah, I can probably have a little bit better oven understanding, but I also would then ask. Okay, well, your hope you're thinking that the housing market's gonna collapse like it was 2008. The 2008. The housing market was a very big problem from a credit perspective which created, you know, no liquidity within banks. And a lot of people defaulted and foreclosure because people were extremely over lever had too much debt or had too many homes that they couldn't afford when those rates adjusted upwards, which was an arm on adjustable rate mortgage. So it created a collapse within that market itself. Now, if you're looking at today, I don't want to say this is a new economy or this isn't something different. But it's not the same situation, right? Yes, we may see housing become a problem because people are losing their jobs, which means they can't afford their mortgages, which means that they have to foreclose. But they're not foreclosing because they can't afford it. And they still have income where they still have a job like it happened in 2008. So it's a little bit different, and the other point to that, too, is what the Fed is done is they've stepped in and said OK, banks are allowing deferrals on mortgage payments in different capacities. You know, they've helped banks out to support mortgages specifically, and that didn't happen in 2008. There wasn't a bailout in that sector. There's a bailout for the banks. But there was also just a lot of foreclosures because people couldn't afford it because the lending was so lose. That just hasn't happened. So to say that the housing market's gonna collapse like it did in 2008 I think is a hard comparison. Will there be some than some turmoil and some hardship there? Yeah, I just don't know that I see it being similar to where it waas and then my mind. But my overall point is is like That's the macro theory, which is great, you know, understandable. You can think about in different ways. Someone could argue differently than me, fine. But my argument to all of it is it really comes down to why are you buying the house? Are you buying it for the next five years, 10 years, 15 or 20 years. Because if you're gonna go on by this house and this house is going to be your primary residence and it's your dream home for the next 20 years, if you were to go pay a market price, that was, let's say you had to go $20,000 over asking over that 20 years that $20.1000 dollars really made not be such a big hit. Yes, like someone could say, Well, I didn't make as much money. That is true, but you also can't time the market. And if you can position yourself to them, people take advantage of one. Those things do drop. That's the best thing. But it's very hard to time, and people may get themselves into situations where they're like, Oh, the housing market's really low. I'm gonna buy an over leveraged myself just because it's a good opportunity. You may cause so many other issues on the other side of your plan that that house could make you become hurt down the road. So what? We would always suggest where clients is preparing yourself to buy that house, saving up for it, knowing that you have stock options or other assets to back a purchase to make sure that you put 20% down, um, and things in that nature to be able to support yourself. So it was a good question, but I again it goes back to I don't know that I would ever try to time collapse. Now you're in the position to take advantage of it at the time. More power to you. But that is really luck. That's not skill.
spk_1: 11:58
I'll jump in and say to you that I think what it really The problem is that if you decide to whether it's from a planning standpoint or investment standpoint side, too, um, get out because you're uncomfortable with the situation. That may not be necessarily the hard decision to make. But the hard decision then becomes When do you get back in? So take a take a market from an investment standpoint. Okay, so you sell today, for example. Thanks. When do you get that? Because you're probably not going to buy when prices start going up. But if you're worried about things like a double dip recession, which was a huge talking point coming out of 2008. Clearly, it did not happen. It's always a talking point. I feel like when we come out of a recession, So that's the complicated part. And then usually when people do eventually do it, But sometimes they just don't. They've missed out on that game that we're talking about those trading days from an investment standpoint. But planning standpoint, situation though. There are times and there are things that you can take advantage off from from just overall life situation. But if you wait too long to do it, which a lot of people will, because beers in a dictator, it's which led you out out of that decision. To begin with, you're likely Mr.
spk_0: 13:18
Which is it? How much is a really good point and nothing. Will you have any thoughts on trying to get back into a market after you sold
spk_2: 13:25
when it's sold in the first place?
spk_0: 13:27
That's what I thought you were gonna say. That
spk_1: 13:29
I should feel that I'm sure from the tangle perspective is that it's not just you getting out of the decision. It's easy to make from from from a yes, I'm gonna do the standpoint, but there are other ramifications that come with the two. There could potentially be costs and making those trades. There's obviously opportunity costs and missing out on those trading days. There could be tax implications that could have impact negatively as well. There's a lot of other factors that can really hurt you, depending on I mean, with Daniel when he built a portfolio, he's building that portfolio for a long term game situation. And if we basically with you were to hypothetically constructive Portfolio and six months later, self go out of it, those gains are not gonna be long term, long term game. We're gonna be looking at short term game. So if a person has a portfolio that is not inside of, ah, retirement vehicle, that's going to really hurt.
spk_0: 14:25
Then I think that's my slide analogy may have been pretty poor, but my overall point there is that you have to understand what you're getting yourself into. No, you don't go. Another analogy, I guess. Right? The cliches is why would you ever go mountain? You know, like rock climbing without a harness and a rope. You know, you have to understand the situation. You're getting yourself into. And then once you can do that, then you can be ableto have maybe the understanding that this is how it's going to be just like the stock market. It's a long term investment in that it doesn't matter if you're indexing or if you're an active manager, right? Everyone says it's time. It takes time and it reverts back to the need. But that means you have to take the ups and the downs, and it's very hard to know when those ups and downs are gonna come looking Cove in 19 No one thought that a virus. Yes, I think Bill Gates in 2015 said The next biggest thing was gonna be a virus. Well, I don't know. No one listened or no one was thinking about it. But it other outside of that, who knew that I was gonna create the recession coming out of this long term bull market and who this was a good podcast, Guys, that is coming up on our chart timeto end. So we're gonna throw it off with what we have learned
spk_1: 15:37
again. Market timing really is not an investment concept
spk_0: 15:42
is
spk_1: 15:42
a speculation concept, and it's one that, for the most part, has not worked for anybody that thinks in this case. For example, you saw this coming. You know, I really disagree with the overall concept there. Sure, people knew that there were issues overseas with with the Corona virus. Sure, it could come here. Not the first time we've seen that, though in the nineties, when we have the Ebola scare that was fortunately for American contained the Africa. And so in that situation, could it Could it have grow containment? Yeah, absolutely. It could have, but Well, you said, Can you see that coming? Maybe. But the thing is, you don't know to what extent and what it's going to affect and for how long. And who's really going to be exposed globally and who is not mean? Quote one more article that I had read. And this is an article from January of last year written by Murray Coleman. And he's an investigator for Index one advisers, and he throws a punch statistics out here. So this is interesting. So Ebola, um, which is in 2020 14 at the nineties. I'm sorry. 2014. The six month of the turn in the S and P was 6.36% for swine flu in 2009 6 months following returned 20%. So following 12 12 months returned there for swine flu, 38.78%. You just don't know what the actual impact is going to be and how people are going to react. There's no way to predict people, so there's no way to be able to protect the market and how it's gonna be influenced because it is influenced by people. I would
spk_2: 17:33
end it with just going back to the that. The statistics that Tim started us off with, just reiterating that you is impossible to find to know in advance the 10 best trading days for any period of time. If you think that you can time the market by finding those best trading days and achieving a risk adjusted return that is a lower risk return, you will have found the impossible because it is that it's impossible.
spk_0: 18:06
Yeah, I would agree with you on that thing for sure. I think the thing that I would take away from this I'm gonna put my friends were planning hat on, and I'm just going to reiterate that in order to take advantage of situations like Kobe 19 back in 2008 on put you set yourself in position Ah, to be able to take advantage of it comes down to planning and understanding that it takes time, discipline and patients. Um, you know, if you read, I can't remember. Who is it, Gladwell? Think Michael Gladwell 10,000 hours to do something to master it and then to be able to take advantage of it. I mean, why would you Why would you think would be any different than when it comes to your own financial picture? You're gonna grind in and grind out day after day, putting money into savings, thinking, Why do I need this? Why is this here? You know, it reminds me of athletics when your coach is telling you that you have to do one extra sprint into extra spending. Your like list is so dumb I don't get it doesn't make sense. And then all son, you're at fourth quarter and it's it's becomes. That's when that really kicks in. It's the same thing when it comes to planning is that it's monotonous. It's boring because It's not sexy, it's not fun. But at the times when these when times like this do come around, you're thankful for all the work we put in to be able to take advantage or just be able to sustain UM, which is, which is a huge deal. So I don't know that you ever market time, but people who have who looked like the market time, it's because they put in a lot of work and they just happen to take advantage of that time when it comes around. But they don't they don't necessarily plan on it. They just know we'll come here there. But thanks, guys. That was a good one. And, uh, we think all of our listeners listen to a couple of guys talk about things they love, and we will talk to you next time. Thank you for taking the time to start your journey of thinking differently and listening to lbw talk about stuff they love until next time. The opinions expressed in this program are for general informational purposes on Lee and are not intended to provide specific advice or recommendations for any individual on any specific security on any specific broker dealer or custodian. It is only intended to provide education about the financial industry to determine which investments, broker, dealer or custodian may be appropriate for you. Consult your financial advisor prior to investing. Any past performance discussed during this program is no guarantee of future results. As always, please remember, investing involves risk and possible loss of principal capital. Please seek advice from a licensed professional. All opinions expressed by podcast participants are silly, their own and do not reflect the opinion of leech Big More and Weiss Wealth Management LLC. Leech Bickmore Unwise Wealth Management LLC is a registered investment adviser. Advisory service is our only offered to clients or prospective clients or leech. Bickmore and Weiss Wealth Management LLC and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Leech Think More and Weiss Wealth Management LLC. Unless a client service agreement is in place