The Fallacy Of “Staying Invested Or Risk Missing The Move”

Because you can’t time the market, Wall Street’s traditional advice has been that investors should stay invested in stocks at all times in order to avoid missing out on potential returns. 

If an investor does not participate in the market on certain days, he or she will underperform the market, according to a commonly cited statistic. 

Selecting the most extreme numbers in a large dataset is a common statistical fallacy. 

Every year, there are about 250 trading days. Between 45 and 55 percent of trading days (2002 and 2003 were on either end of the range) have been characterized as “up” days in both bull and bear markets over the past century. 

Most days are therefore offset from each other. 

This means that regardless of the year’s total return, a few of the year’s craziest and most extreme days will equal the year’s net return. 

“Staying Invested” is a fallacy, but the following statements from the same data are also true: 

You can avoid losing money in down years by getting out of the market on just a few days. 

Investing in the stock market exposes investors to both gains and losses. 

Both “secular bull markets” and “secular bear markets” (long periods of stagnation or decline) have occurred in the past.

In order to determine which secular period is currently in effect, it may be prudent to examine the market’s conditions and characteristics.