MICHEL PIREU: Timing the markets is not necessarily a fool's errand
What really matters is to avoid a big loss
We’re repeatedly told that only fools try to time the markets. “But we have found, and research shows, that most outperformance is achieved in bear markets,” says Trevor Garvin, head of multimanagement at Nedgroup Investments in 2015. “If you can protect capital in falling markets, even though you might not get all the upside of a market, over time you will end up doing far better as you are coming off a higher base.” As James Sogi put it: “By losing a bit less and winning a bit more, the overall war is won bit by bit. The key is avoiding a big loss.” A piece of research that gets bandied about a lot is that of Javier Estrada, a professor at the IESE Business School in Barcelona, who after analysing the Dow between 1900 and 2006 found that missing the best 10 days resulted in portfolios that were 65% less valuable than a passive investment. What has got less of an airing is Estrada’s finding that avoiding the worst 10 days resulted in portfolios 206% more valuable than a passive inv...
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