If you read Wall Street’s propaganda, it is designed to force you to sit back and accept “the average.” Take this excerpt, by Selena Maranjian “Say No to Market Timing”:

If you’re tempted to listen to investing experts on TV when they recommend getting in or out of the market, think twice. Many financial prognosticators like to predict when the market will surge and when it will crash. Unfortunately, they’re often wrong. No one can consistently and accurately know what the market will do in the short term. In the long term, though, the trend is clear: The market tends to rise. If you invested in the stock market from 1963 through 1993, it would have yielded an average annual return of 11.83%. That should seem pretty good. But, here’s the amazing part. The period of 1963 through 1993 includes 7,802 days. If you were out of the market (not invested in it) for the 10 days when the market rose the most, your average annual return would only be 10.17%. If you sat out the 30 best days, your return would plunge to 8%. Up that to the 90 best days, and you’re down to a mere 3.28%. Most of the market’s gains seem to occur on just a few days. This means anyone who tries to time the market is at risk of missing out on substantial gains. While some will suggest that there are dangerous times to be in the market, it’s probably more dangerous to be out of it. The lesson is clear: If you hang on for the long term, you’ll be in the market on days when it counts — and able to ride out the downturns.

That should seem pretty good?

Has Selena Maranjian heard of Bill Dunn? Or Ed Seykota? It appears not. This author’s intent is to make you see that your only choice is 11% a year. Accept your lot and be like everyone else is the message.

Why would one accept “the average” when there are ways to beat it?

Tom Basso, a retired and very successful trend follower, sees another area of concern:

Another psychological aspect that drives me to use timing techniques on my portfolio is understanding myself well enough to know that I could never sit in a buy and hold strategy for two years during 1973 and 1974, watch my portfolio go down 48% and do nothing, hoping it would come back someday.

The Statistical Sleight of Hand in the “Best Days” Argument

The “if you miss the 10 best days” argument is one of the most widely cited statistics in the buy-and-hold advocacy toolkit. It sounds compelling: the data is real, the math is correct, and the conclusion seems to follow directly. But the argument has a specific flaw that its proponents never mention.

The analysis only looks at missing the best days. It never asks what happens if you also miss the worst days. A timing approach that avoids the 10 worst days would produce returns that dwarf the buy-and-hold result just as dramatically as missing the 10 best days would reduce it. Academic research has consistently shown that the best days and the worst days in equity markets tend to cluster together — they occur in the same high-volatility periods. A long-term investor who is out of the market during the worst periods is also likely to be out during some of the best periods. But a system with defined entry and exit rules based on price trends is not out during the best days of a bull market. It is in during bull market trends and out or short during bear market trends. The “best days” argument assumes that the only alternative to buy-and-hold is being randomly absent from the market. Systematic trend following is not random. It is reactive.

Tom Basso’s observation is the psychological complement to the statistical argument. The “ride out the downturns” advice assumes the investor can psychologically sustain a 48% drawdown for two years without selling at the bottom. The actual behavior of retail investors during bear markets consistently demonstrates that they cannot. The average retail investor’s returns are dramatically below the buy-and-hold benchmark specifically because they exit at the lows and reenter at the highs — doing exactly what the article warns against while ostensibly following the buy-and-hold strategy. The strategy that requires superhuman psychological endurance during the worst market conditions is not a realistic strategy for most investors.

Bill Dunn and Ed Seykota are mentioned specifically because their documented returns over decades make the 11.83% annual average look like the floor, not the ceiling. Both produced compound returns that dramatically exceeded the equity market average over periods that included multiple major bear markets. They were not out of the market during the best days. They were positioned appropriately for whatever conditions the market produced. That is the alternative the article does not mention because acknowledging it would undermine the “accept the average” message.

Frequently Asked Questions

What is wrong with the “don’t miss the best days” argument for buy-and-hold?

It presents a false binary: either stay invested at all times (and capture all the best days) or engage in random market timing (and risk missing them). It ignores the third option: systematic rules-based timing that tends to be invested during trending bull market periods and out or short during trending bear market periods. The best and worst days tend to cluster in the same high-volatility environments. A reactive systematic approach is not randomly absent during the best days of bull markets.

Why can’t most investors realistically follow a buy-and-hold strategy?

Because the psychological cost of watching a portfolio decline 48% over two years while doing nothing exceeds what most investors can sustain. As Tom Basso noted, he knew himself well enough to know he could not endure it. The actual behavior of retail investors during bear markets confirms this: they sell at the lows, not during the declines that preceded the lows. The buy-and-hold strategy requires psychological endurance that the actual distribution of human risk tolerance does not provide to most practitioners.

Why should investors not accept the 11.83% average as the ceiling?

Because documented systematic trend following managers have produced compound annual returns dramatically exceeding the equity market average over decades spanning multiple market regimes. Bill Dunn, Ed Seykota, Jerry Parker, and others produced returns that make the buy-and-hold average look modest. The average is what investors get when they follow the most accessible, least informed, psychologically difficult approach. It is not a ceiling on what systematic risk management and defined rules can produce.

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