[article on effect of missing 5 best or worst days of the year]

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Browser
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[article on effect of missing 5 best or worst days of the year]

Post by Browser » Thu Oct 15, 2015 8:25 am

Here's an interesting comparison of your stock market gains since 2000 with a lump sum investment if you had been able to miss the 5 worst days each year, missed the 5 best days, or simply done nothing.

Image

http://www.marketwatch.com/story/risky- ... beforebell

What I'd like to see is the returns if you had missed the 5 worst days and the 5 best days each year. Since the best days and the worst days tend to occur together during the same timeframe that might have been possible by using something like a moving average timing system.
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Re: Would you risk an 88% loss for a 2,438% gain?

Post by knpstr » Thu Oct 15, 2015 8:41 am

clickbait title :wink:
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Re: Would you risk an 88% loss for a 2,438% gain?

Post by HomerJ » Thu Oct 15, 2015 8:45 am

I'll just take the $1.42 for doing nothing thank you very much.

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Stock market, 15 yrs without best/worst 5 days

Post by small_index » Thu Oct 15, 2015 8:46 am

I think your thread needs a new title: you don't even mention the "88% loss" or "2438% gain" in your topic. I also don't see what action someone would take as a result of reading this thread. There isn't a way to remain in the stock market except for the worst 5 days.

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Re: Would you risk an 88% loss for a 2,438% gain?

Post by paper200 » Thu Oct 15, 2015 8:48 am

Nice power point slide for extracting 2% from OPM. And if you luck out the 20% additional money from OPM :moneybag
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Re: Would you risk an 88% loss for a 2,438% gain?

Post by livesoft » Thu Oct 15, 2015 8:50 am

Previous best and worst days threads:

viewtopic.php?t=122056

viewtopic.php?t=60207
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Re: Would you risk an 88% loss for a 2,438% gain?

Post by MathWizard » Thu Oct 15, 2015 9:07 am

Can't tell from article, but this probably ignores dividends.

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Re: Would you risk an 88% loss for a 2,438% gain?

Post by tadamsmar » Thu Oct 15, 2015 9:11 am

I'd risk the Kelly fraction on that proposition and not a penny more.

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Re: Would you risk an 88% loss for a 2,438% gain?

Post by GoldenFinch » Thu Oct 15, 2015 9:13 am

I wonder what buy and hold and invest a monthly savings sum plus dividends would look like.

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Re: Would you risk an 88% loss for a 2,438% gain?

Post by bigred77 » Thu Oct 15, 2015 9:17 am

MathWizard wrote:Can't tell from article, but this probably ignores dividends.
+1

Also he used the DOW, which is weird to say the least, as i suspect the numbers proved his point far better than the S&P 500 with dividends reinvested

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Re: Would you risk an 88% loss for a 2,438% gain?

Post by Epsilon Delta » Thu Oct 15, 2015 9:27 am

Browser wrote:
What I'd like to see is the returns if you had missed the 5 worst days and the 5 best days each year. Since the best days and the worst days tend to occur together during the same timeframe that might have been possible by using something like a moving average timing system.
Let:
a = return for best days
b = return for the rest
c = return for the worst

a x b = 25.38
a x b x c = 1.42
b x c = 0.12

so
c = 1.42 / 25.38 = 0.05595
a = 1.42 / 0.12 = 11.83
a x c = 0.6621
b = 1.42 / 0.6621 = 2.14

So it's better to miss both the best and worst than to include both. But that's twice as hard as just missing the worst days, so why bother? :D

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Re: Would you risk an 88% loss for a 2,438% gain?

Post by Toons » Thu Oct 15, 2015 9:28 am

I did do large lump sum investments in 1997-8-9-2000-01.
Still own them :happy
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Re: Would you risk an 88% loss for a 2,438% gain?

Post by Epsilon Delta » Thu Oct 15, 2015 9:29 am

tadamsmar wrote:I'd risk the Kelly fraction on that proposition and not a penny more.
How do you calculate the Kelly criteria when you only know the outcomes, not the odds?

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Re: Would you risk an 88% loss for a 2,438% gain?

Post by greg24 » Thu Oct 15, 2015 9:30 am

A regular guy made 2,438% in the stock market! You'll never believe how!

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Re: Would you risk an 88% loss for a 2,438% gain?

Post by kolea » Thu Oct 15, 2015 11:58 am

This thread made me remember the thread from a month or so ago by Calais (Selling all equities...) who sold all his/her equities. It looks like the market (VTSAX, actually) is up about 4% from when he sold everything. You just never know what's gonna happen.
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Re: Would you risk an 88% loss for a 2,438% gain?

Post by 691175002 » Thu Oct 15, 2015 12:08 pm

Browser wrote:Would you risk an 88% loss for a 2,438% gain?
Assuming equal probability of either outcome, this would actually be an extremely good investment opportunity. Even if the outcome was biased towards the losing side, if its outcome was independent of market direction (probable) it would be a great diversification tool.

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Re: Would you risk an 88% loss for a 2,438% gain?

Post by Maynard F. Speer » Thu Oct 15, 2015 1:00 pm

Interesting question whether you could cost-effectively reduce your exposure to these worst days

Immediately thinking you could see what a trailing stop-loss does, set at a certain level of volatility .. Presumably reenter the market the next day

Otherwise I'd wonder how many of these worst days occur when the index is below its 200 day moving average - I'd presume most of them
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Re: Would you risk an 88% loss for a 2,438% gain?

Post by GoldenFinch » Thu Oct 15, 2015 1:06 pm

TwoByFour wrote:This thread made me remember the thread from a month or so ago by Calais (Selling all equities...) who sold all his/her equities. It looks like the market (VTSAX, actually) is up about 4% from when he sold everything. You just never know what's gonna happen.
And the S&P is up over 5%. You're right that you just don't know........

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Re: Would you risk an 88% loss for a 2,438% gain?

Post by knpstr » Thu Oct 15, 2015 1:27 pm

TwoByFour wrote:This thread made me remember the thread from a month or so ago by Calais (Selling all equities...) who sold all his/her equities. It looks like the market (VTSAX, actually) is up about 4% from when he sold everything. You just never know what's gonna happen.
It's only been a month!
You are so focused on the short-term. :wink:
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Re: Would you risk an 88% loss for a 2,438% gain?

Post by Maynard F. Speer » Thu Oct 15, 2015 1:46 pm

GoldenFinch wrote:
TwoByFour wrote:This thread made me remember the thread from a month or so ago by Calais (Selling all equities...) who sold all his/her equities. It looks like the market (VTSAX, actually) is up about 4% from when he sold everything. You just never know what's gonna happen.
And the S&P is up over 5%. You're right that you just don't know........
I mentioned in that thread, it's completely meaningless where the S&P is today unless you are selling .. Selling when risk outweighs return *may* be smart - selling on exactly the right day would always come down to luck

We'll know in a year or two's time whether he was right or not
"Economics is a method rather than a doctrine, an apparatus of the mind, a technique of thinking, which helps its possessor to draw correct conclusions." - John Maynard Keynes

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Re: Would you risk an 88% loss for a 2,438% gain?

Post by Dulocracy » Thu Oct 15, 2015 2:08 pm

knpstr wrote:clickbait title :wink:
And we fell for it.

To answer the question: depending on the circumstance, yes. Yes I would make that risk. With a set portion of my portfolio. Presuming a fairly even chance of each.
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Re: Would you risk an 88% loss for a 2,438% gain?

Post by jjface » Thu Oct 15, 2015 2:23 pm

me too suckered into reading this.

I'd risk $1000 for a 2438% gain but not $100k.
Last edited by jjface on Thu Oct 15, 2015 2:24 pm, edited 1 time in total.

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Re: Would you risk an 88% loss for a 2,438% gain?

Post by sillysaver » Thu Oct 15, 2015 2:24 pm

Well, to answer the headline question, I would, but with a limited % of my portfolio, perhaps 2%.

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Re: Would you risk an 88% loss for a 2,438% gain?

Post by kolea » Thu Oct 15, 2015 2:24 pm

Maynard F. Speer wrote: I mentioned in that thread, it's completely meaningless where the S&P is today unless you are selling .. Selling when risk outweighs return *may* be smart - selling on exactly the right day would always come down to luck

We'll know in a year or two's time whether he was right or not
Actually it is not the amount of lapsed time that determines whether Calais successfully timed the market, it is when he actually gets (or got) back into it. If he never gets back in, then all we can do is compare snapshots of his all-cash portfolio to the market portfolio at an instant in time. The current instant is just as valid as some future instant for such a comparison. Success is only relevant to that instance in time. Calais may look successful in one instant but not another.
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Re: Would you risk an 88% loss for a 2,438% gain?

Post by Maynard F. Speer » Thu Oct 15, 2015 2:55 pm

TwoByFour wrote:
Maynard F. Speer wrote: I mentioned in that thread, it's completely meaningless where the S&P is today unless you are selling .. Selling when risk outweighs return *may* be smart - selling on exactly the right day would always come down to luck

We'll know in a year or two's time whether he was right or not
Actually it is not the amount of lapsed time that determines whether Calais successfully timed the market, it is when he actually gets (or got) back into it. If he never gets back in, then all we can do is compare snapshots of his all-cash portfolio to the market portfolio at an instant in time. The current instant is just as valid as some future instant for such a comparison. Success is only relevant to that instance in time. Calais may look successful in one instant but not another.
If the current instance is missing out on a potential 4-5%, and a year later we're talking about 40-50%, you can extrapolate meaning from that - but otherwise I'd agree: equally valid, and potentially equally meaningless

When/if he gets back in will be the real test - we know most people get this wrong, but sometimes the whole market's wrong .. Of course it may just be that this turns out to be a terrible century for stocks, and the most successful investors will all be in alternative financing
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Re: [article on effect of missing 5 best or worst days of the year]

Post by Alex Frakt » Thu Oct 15, 2015 3:15 pm

Title changed from "Would you risk an 88% loss for a 2,438% gain?". Titles here must be meaningful. We don't do clickbait.

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Re: [article on effect of missing 5 best or worst days of the year]

Post by afan » Thu Oct 15, 2015 3:19 pm

Picking days is for Bogleheads. I want to get out of the market for the worst hour of each trading day. I bet the backtest would show this to be far better than just missing a few bad days. If someone convinced me they could do this they would be welcome to their 2 and 20.
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Re: Would you risk an 88% loss for a 2,438% gain?

Post by GoldenFinch » Thu Oct 15, 2015 3:27 pm

Maynard F. Speer wrote:
GoldenFinch wrote:
TwoByFour wrote:This thread made me remember the thread from a month or so ago by Calais (Selling all equities...) who sold all his/her equities. It looks like the market (VTSAX, actually) is up about 4% from when he sold everything. You just never know what's gonna happen.
And the S&P is up over 5%. You're right that you just don't know........
I mentioned in that thread, it's completely meaningless where the S&P is today unless you are selling .. Selling when risk outweighs return *may* be smart - selling on exactly the right day would always come down to luck

We'll know in a year or two's time whether he was right or not
True. Hopefully he will come back and let us know when he gets back in. Or maybe he was out for good.

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Re: Would you risk an 88% loss for a 2,438% gain?

Post by tadamsmar » Fri Oct 16, 2015 9:47 am

Epsilon Delta wrote:
tadamsmar wrote:I'd risk the Kelly fraction on that proposition and not a penny more.
How do you calculate the Kelly criteria when you only know the outcomes, not the odds?
Good question!

Well, you have to pick those days in advance to get out of the market, so I guess you pick days at random.

But maybe livesoft can come up with a prediction for RBDs in advance. However, since he has avoided even clearly specifying the criteria for picking an RBD in progress, I guess I will have to stick with random.

You could calculate the odds that that will pay off from historical data.

My best guess is that the Kelly fraction is zero.

I'm ready to move that many chips into the pot right now!

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Re: [article on effect of missing 5 best or worst days of the year]

Post by Dulocracy » Fri Oct 16, 2015 11:02 am

Perhaps this is what livesoft is grabbing for on the Really Bad Day investing?
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Re: [article on effect of missing 5 best or worst days of the year]

Post by randomguy » Fri Oct 16, 2015 11:13 am

If you think about it this stuff makes a ton of sense. Imagine the 5 best days of the year return 2%. Thats a 10%/yr loss if you miss them. That is pretty much the whole gain for the yea on average. What about missing the worst 5 (call it -2%/day)? Now you are upping your return by 10% so instead of making 10%, your making 20%. You will have insane returns.

Of course unless you can predicate when these days occur, this is useless info.

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