Market Timing  |  APR 2008

Missing The 10 Best Days by Richard Ahrens

Missing The 10 Best Days by Richard Ahrens 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). 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.

by Richard Ahrens