The Risk of Missing the Good Times Can Be Disastrous

The CFA society, of which we are both members, publishes a lot of great information on markets and investing. The piece below came out last week and it does a great job driving home the point that missing the market’s best weeks can be disastrous to an investor’s returns.

Here is the link:

One thing we know is that the market’s best weeks and returns tend to happen in close proximity to the worst periods, too. Which is why getting “shaken out” in a correction is so dangerous.

We quote (emphasis ours), “The majority of the best weeks occur underneath the 40-week moving average (80% and 60% of the best 10 and 20 weeks). This line, which is roughly equivalent to the 200-day moving average, smooths out market gyrations to give a clear picture of what type of market environment you are in. Take the best week, for example, which occurred in October 1974. This happened during one of the worst bear markets our stock market has ever seen, as the collapsing yellow line clearly demonstrates.”

The athor notes that over 40 years, missing just the 10 best weeks of the market cuts one’s return by nearly 30%.

It is our mantra to control downside risk so that our investors, our clients and we ourselves can better weather downturns. We do not run from downturns, but ride them out knowing that the eventual upward move is the one that will compound our captital. We get paid, in this way, to stay invested.

Through the biggest market drops our clients have seen, we are happy to report that generally even our most aggressive portfolios capture 20-30% less than the markets.