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What's the big deal of missing out on 15 best days in the market over the past 2.5 years?

This question may sound presumptuous to some.

But hold on, I will slowly come to this question and explain why this is the title of this article.

First of all, let me walk you through some background stories.

You looked at the market on a weekday night in early March. You see that COVID is beginning to spread across the world. WHO just declared COVID as a pandemic. You see the market having horrendous drops day after day with the circuit breaker kicking in multiple times. This must be the time to stay out of the market- you thought to yourself. That's an easy call.

With the world going into chaos, you attempt to predict whatever that's going to come and give yourself a pat on the shoulder for making such a smart call. You are essentially doing the number one thing many of the investors like to do- predicting the future.

Surely, we can predict the future right? It's hard to imagine not being able to predict what's coming next. After all, we have all the data in the world! If I'm not predicting the market right, it must be due to the fact I missed out on some key data somewhere. I just need to find the right data and I should be on the right track to predict the market again. If we have already started sending ourselves to space, predicting the market must be a much simpler affair and it can be done!

Well, not really.

And there are many good reasons behind them.

Many of the data that we are seeing in the market are actually lagging indicators. They do nothing to aid you in predicting what's to come next. Interactions between multiple economic forces are extremely complex too. And imagine geopolitical tensions being thrown into the mix. We have all seen what the Chinese government has been doing to the market for the past 2 years and I think we can all agree that we all thought all the intervention had stopped at some point of time in the past 2 years. But look where we are now. Hence, predicting where the market is going is extremely challenging and even the brightest minds have difficulty doing so. I'm sure all of us can remember some of the experts telling us inflation was transitory last year. Again, look where we are now.

As retail investors, a lot of psychology comes into play when we look at the market too. Everyone of us likes to think that we are smarter than everyone else and we like to feel exhilarated at having our predictions of the market right. To be honest, it's the same feeling as gambling if you think about it. But you tell yourself- of course I'm not gambling! Gambling is making choices or predictions without data. I read countless research on stocks and I even made my own research about the market by crunching the numbers.

This all goes into a self reinforcing cycle and hence you begin to slowly believe that you can time the market. You started creating narratives telling yourself that it's wise for me to stay out of the market now. You should just hold cash, wait for the next big crash, and boom you'll be on the way to early retirement.

This is where I will go back to the title of this article.

What's the big deal of missing out on 15 best days in the market over the past 2.5 years?

You might think that timing in the market is not important if you can time the market.

Just look at the chart below.

Just missing out on 15 best days over a period of 2.5 years can halve your investment returns. This is despite the fact that the one who is in the market throughout has a much higher initial buy in price and even sees his portfolio drop almost half during the covid crash. More often than not, success in the market is all about being in the market in the right place at the right time and that's no way anyone can absolutely time perfect entries and exits in the market.

This is why simply being in the market is the best thing you could do to your portfolio today. Don't be a gambler.

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