Don’t Blink: Why Missing Just 31 Days Erases 25 Years of Gains
A study commissioned by Towneley Capital Management and conducted by Professor H. Nejat Seyhun, University of Michigan
Highlights of the Study
This comprehensive study looks at stock market turbulence and how it can affect investment performance.
Professor Seyhun studied stock market returns and risk for all months and all days for the 99 years from 1926 through 2024, inclusive. His findings highlight the challenge of market timing, since a small number of months or days accounted for a large percentage of market gains and losses. For example:
From 1926-2024, monthly timeframe, a capitalization weighted index of U.S. stocks gained a geometric average of 10.0% annually. An initial investment of $1.00 in 1926 would have earned a cumulative $12,082. If an investor missed the market's best 12 of the 1,188 months, the annual return falls to 7.4% and the cumulative earnings to $1,200. Missing the best 48 months, or 4.0% of all months, reduces the annual return to 3.7% and the cumulative gain to $36.
Avoiding months when the market plummets can, of course, greatly improve performance. Excluding the single worst month raises the geometric average annual return to 10.3% and the cumulative return to $16,881. Eliminating the 48 worst months lifts the annual return to 18.4% and the cumulative amount to $8,908,575.
For the 1926-2024 daily timeframe, the findings were similar. First, the stock market was open six days a week between January 1926 and September 1952, also trading between 10 AM and 12 Noon on Saturdays. Therefore, there are a total of 26,050 trading days between January 1926 and December 2024. If the best 90 trading days, or 0.35% of the 26,050 trading days, are set aside, the annualized return tumbles to 4.1% and the cumulative gain falls to $52.
If the 10 worst days are eliminated, the annual return jumps to 11.2%, and the cumulative return increases to $37,758. With the 90 worst days out, the annual return rises to 16.7% and the cumulative gain to $4,093,475.
Close examination of the study's data also shows that:
In the 1926-2024 monthly span, missing the best 4.0% of the months (a total of 48 months) would have created exposure to 93.4% of the risk of continuous stock market investing, but the average annual return would have been only 21% (3.7% versus 3.1%) above the return on Treasury Bills.
In the 1926-2024 daily span, missing the best 0.35% of the days (a total of 90 days in all) created an exposure to 93.5% of the risk of continuous stock market investing. In this situation, the average annual return would have been slightly above that of Treasury Bills.
The study also examined the most recent 25 years, 2000-2024. The conclusions of the study hold even stronger in the most recent period. The entire 25 years of returns are earned during only the best 31 days, or about 0.5% of the days. Miss these 31 days, and the investor will have nothing to show for 25 years of investing.
