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Step 4: Time Pickers

in the market every day throughout the entire 20 years. The problem, however, is finding the crystal ball that can forecast the 40 worst performing days out of 5,037 days. This shows how market timing can be tempting and alluring. University of Michigan Professor H. Nejat Seyhun analyzed 7,802 trading days for the 31 years from 1963 to 1993 and concluded that just 90 days generated 95% of all the years’ market gains — an average of just three days per year.67 The expected return of the market is essentially constant and positive. Therefore, investors who are out of the market for any period of time can expect to lose money relative to a simple and low-cost buy-and-hold strategy.

Figure 4-3

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