Many investors want to get in and get out of markets regularly in an attempt to time the markets. But does it work well for them? I don’t know. But in an attempt of timing the markets, what would have happened if you missed the 10 best days in the Indian stock markets?
Moving in and out of the market could lead you to miss out on days when the market is in a good mood. As per available data, if you had missed out on only 10 days out of 40 years of the BSE Sensex, you would have lost two-thirds of your returns!
Moving in and out of the market could lead you to miss out on days when the market is in a good mood. As per available data, if you had missed out on only 10 days out of 40 years of the BSE Sensex, you would have lost two-thirds of your returns!
I came across this interesting article (link) and wanted to share a part of it with the readers:
In the 40+ years of the Sensex’s existence, your Rs 100 would have compounded to Rs 44,000.
But suppose you missed out on just 10 good days, which is about one day in 4 years, that shouldn’t matter much, should it? Data shows it matters a great deal – the Rs 44,000 goes down to Rs 15,000. So two-thirds of the return is gone by just missing out on 10 days. If you miss out on 30 such days, which is an average of less than one day a year, you are down to less than Rs 4000. As much as 90% of the gains are gone!
Thus, it is clear if you miss out on these rather infrequent up days you lose big time. There is a huge risk in NOT being in the markets for the long term.
You may want to avoid missing the good days. You may try to devise a strategy for this. But problem is that more often than not, most of these up days come in the middle of a crisis or after a crash. So in that negative environment, it’s not easy to remain invested or invest more no matter how easy it sounds now.
Therefore based on history, the risk is more in sitting out rather than being in the market.