It is widely accepted among financial professionals that market timing – buying at the market low and selling at the market high – is virtually impossible. That doesn’t stop many from trying to do it. Sometimes it pays off. There are some investors who wisely sold at market peaks like in March 2000 at the height of the dot-com bubble or in October 2007 before the Great Financial Crisis. We know they’re out there because they rarely pass up an opportunity to talk about it when predicting the next great crash, which often fails to materialize.
The difficult part is not only predicting when to sell at market peaks, but when to get back in when markets bottom out. How many of the doomsayers of 2000 or 2007 saw the golden opportunity to get back into the market in July 2002 when the S&P 500 was 48% off its peak, or in the gloomy days of March 2009 when the index was 57% off its high? Certainly, they would also talk about their success if they got back in at those market bottoms, but none of the timely sellers boast about that side of timing the market.
To succeed at market timing, one must get both the sell and buy dates right. Missing out even by just a handful of days when markets begin to recover can have dramatic consequences on investment returns. We have shared the chart below in the past, but it has been updated to show that missing just the 10 best days of total return growth in the S&P from 2000 through 2024 would have cut your return in half. Starting with $100,000 in the S&P 500 at the beginning of 2000 and remaining invested through the peaks and valleys of those tumultuous 25 years would have seen your investment grow to $638,760 versus just $292,780 if you missed out on the best 10 days.
Market timing isn’t just about dramatic peaks and troughs. Questions about timing enter into just about every market situation. Shifting our attention to current market conditions, we find ourselves once again near all-time highs in the stock market. Assuming you have cash to invest at this point, should you wait for a dip in the market to invest? Is the market too high?
History suggest that it doesn’t really matter. The following chart shows other times when the S&P 500 was at or near its peak amid worries that the market was too high to invest. As you can see, market highs do not always equal market bubbles. Stock markets grow over time in line with rising corporate earnings, among other factors. There is not a ceiling on market growth just because it hits a new high. As long as earnings have been there to support prices, stock markets generally have continued to go up.
One of the most important qualities for a successful investor to have is not market timing skill, but patience. Getting invested and staying invested is vital for long-term success. Staying on the sidelines, even at market highs, can hurt your investment performance and demand even more patience to reach your financial goals.
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