In an
article that appeared in Barron's
Newspaper in November 2001 titled "The
Truth About Market Timing", author
Jacqueline Doherty referred to a study done for
Barron's by Bininiy Associates that shows since
1966 if an investor had moved his money out of
the market for the 5 worst days of each year, his
return through October 29th would have been
98,712% instead of the 1,171% return of a buy and
hold investor. This is 84 times
the return of the buy and hold investor.
While no one can predict the 5 worst
market days of the year, it does show that
returns can be favorably impacted in a significant
way by avoiding periods of market decline.
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In a
separate study by
Prof. Don M. Chance, from the Department of
Finance at Virginia Tech, and Prof. Michael L.
Hemler, Department of Finance and Business
Economics at the University of Notre Dame that was
published in the Journal of Financial
Economics, the performance of 30
professional market timers was studied over a 9
year period. The study found evidence of significant
ability of the market timers across all tests and
portfolios.
And,
a story at BenefitsBlog, a tax benefits and ERISA
law commentary, sites an article (subscription required) by Peter
Bernstein in the Wall Street Journal
suggesting a buy and hold strategy may not be the
wisest course for investors today.
The fact remains that market timing
when performed properly can and does increase
returns while reducing risk in case after case.
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