This study presented below is one that we have published for years and it simply tracks the outcome of four hypothetical investors over the last 24 years.
Mr. Investor 1
The first investor who we’ll term, “the Buy and Holder” simply buys the S&P 500 Index and rides it up and down, making no movements at all in the portfolio.
Ms. Investor 2
Our second investor, is assumed to be clairvoyant and is only invested during months in which the S&P 500 Index is up. So, in 2008 this investor would have only been invested in April, May, August and December, as those were the only positive months in 2008. In our view, this is about as “perfect” as any “market timer” would strive to be, and thus we feel this pretty well quantifies the best case scenario for market timing.
Investors 3&4
Our last two investors were both sector investors, one of which had the ability to know each and every year what the best performing sector was going to be for that year, and they invested 100% of their portfolio in that sector. But, the fourth investor was an unfortunate fellow, who was perhaps just following a favorite magazine cover or something else that kept him on the wrong side of things each and every year as he managed to find the worst performing sector every year.