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Step 4: Time Pickers

Studies Prove Time Picking Doesn’t Work A study by University of Utah Professor John Graham and Duke University Professor Campbell Harvey is titled, “Market Timing Ability and Volatility Implied in Investment Newsletters’ Asset Allocation Recommendations.”65 The massive 51-page study tracked 15,000 predictions made by 237 market-timing newsletters from June 1980 to December 1992. By the end of the period, 94.5% of the timing newsletters had gone out of business with an average life span of just four years. “There is no evidence that newsletters can time the market,” the study concluded. “Consistent with mutual fund studies, ‘winners’ rarely win again and ‘losers’ often lose again.” “Sure, it’d be great to get out of stocks at the high and jump back in at the low,” observed John Bogle in an interview with Money66 Magazine. “[But] in 55 years in the business, I not only have never met anybody who knew how to do it, I’ve never met anybody who had met anybody who knew how to do it.”

Missing The Best And Worst Days Almost all big stock market gains and drops are concentrated in just a few trading days each year. Missing only a few days can have a dramatic impact on returns. Figure 4-2 illustrates how an investor who hypothetically remained invested in the S&P 500 Index throughout the 20-year period from 1994 to 2013 (5,037 trading days) would have earned a sizable 9.22% annualized return, growing a $10,000 investment to $58,352. When the five best-performing days in that time period were missed, the annualized return shrank to 7.00%, with $10,000 growing to

Index Funds: The 12-Step Recovery Program for Active Investors  

This book reveals the potential land mines and pitfalls of active investing and educates readers on the benefits of passive investing with i...

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