A few days ago I got a question from a client.

Why don’t we move the money to T-Bills to avoid market volatility, and get back to full market exposure only when the market is on an up-trend?

It is all too human to only want to take the upside risk without the downside risk. However, study after study has shown that investors who do that usually end up hurting themselves financially.

Look at the chart. In the fifteen years between 12/31/02 and 12/31/17, missing just 10 of the best return days of the S&P 500 Index would mean that you gave up 66% of the total return during the whole period.

I conjectured that the best return days usually happened at the depth of a bear market when fear and desperation were highest and investors were quitting the market in droves. I asked my assistant Taro to look up historical data to verify that, and here is what he found: the first nine out of the ten best return days in the last fifteen years happened during the Great Recession, just as I had thought!

Rank Date Return

1 10/28/08 10.8%
2 10/13/08 9.93%
3 11/13/08 6.82%
4 03/23/09 6.55%
5 11/24/08 6.32%
6 03/10/09 5.94%
7 11/21/08 5.85%
8 12/16/08 4.78%
9 09/30/08 4.72%
10 8/9/11 4.67%

(Feel free to share if you find it insightful.)

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