Timing the market or time in the market

Our last article covered the impact that historical conflict events had on markets and how long they took to then recover. We concluded that whilst some may have been surprised at the relatively short time markets took to start moving forward again, there has not been any event which the market has not recovered from and sometimes the “end of the world” does not look so bad in hindsight. Following from that article we felt it would make sense to look at bear markets (declining markets) more generally and explore how spending time in the market always beats attempting to time the market.
Regular readers will know we like to use quotes to help emphasize points. The following quotation, from the noted investor and philanthropist Peter Lynch, falls in line with our thinking.
“Far more money has been lost by investors trying to anticipate corrections, then lost in the corrections themselves”.
-Peter Lynch
A perfect example of the above is back in March 2020. People who panicked and sold out of the markets as we entered lockdown, realised their losses only to then watch from the side lines as well-balanced portfolios weathered the initial Covid related “storm” to power forward and create positive returns. Those who sold out of their investments to cash thinking they could protect themselves against the falling trajectory of the market missed out on the upwards rally. If they had been planning timing their re-entry point to the market, they would not have been able to recover in the way their less nervous peers did.
Whilst undoubtedly there would have been some “exceptions” who managed to time it well, history tells us that simply riding out the lows by remaining invested, ensures you benefit from the inevitable (and often very rapid) recovery. This has a more positive impact than trying to move in and out and missing some of the best days.
The table below looks at how missing the best 30 days over 20 years can be catastrophic to returns.

Chart, waterfall chart
Description automatically generated

Source: Bloomberg Finance L.P. 

It is undoubtedly true that bear markets are scary, but they are often short lived, especially when compared to the bull markets that most certainly would follow.  Fund manager, Hideo Shiozumi, very rightfully said “bull markets are born out of pessimism”.

The following table below provides some context around bull and bear markets. It looks at how long markets fell for (and by how far) during bear markets compared to how long (and again by how much) in the subsequent bull market rose.

Source: Bloomberg Finance L.P.

Given that our last article looked at conflict from the attack on Pearl Harbour in 1941, it seemed prudent to start this analysis with the bull market that followed this attack which ran from 1942 and lasted 4.1 years with returns of 158%.

The main takeaway though is that since the attack on Pearl Harbour, the average bear market has lasted 11 months and saw falls of 33%, whilst the average bull market has lasted 4.8 years and returned 164%. Finally we leave you with a quotation from the noted investor Warren Buffet, who said “the stock market is a device to transfer money from the impatient to the patient”.

This post was written and brought you by Compass Independent Financial Advisers.

Other articles you might like

Interesting Interest Rates

The cost of living seems to be one of the most talked about subjects, particularly during the last few weeks with the debate over who


The objective of the game: To become the wealthiest player through buying, renting and selling assets whilst bankrupting all other players. Whist the game, Monopoly,

Conflict Events

We are deeply saddened by the invasion of Ukraine. We have received several enquiries from clients regarding their portfolios and the impact of the situation

Review of 2021

A Review of 2021: By Dorian Squires and Joanna Ho of Compass Independent Financial Services Ltd 2021 brought hope for global economic growth following 2020’s


Mr X was coming up to a major decision regarding his retirement and financial planning. He came to us for advice on both his retirement