Market Timing

Market timing means moving in and out of the market based on where you think it's heading: selling before a fall and buying back before the rebound. It sounds like common sense. The trouble is that a handful of days make a large share of the long-term return, and those days are almost impossible to see coming.

The Swiss Performance Index (SPI) is a single figure that tracks almost all companies based in Switzerland or Liechtenstein that trade on SIX Swiss Exchange, counting their dividends, the profits they pay out, as if they were reinvested. Here's what CHF 10,000 in it became from the end of 2005 to the end of 2025, and what was left for someone who happened to be out of the market on its best days:

Staying invested turned CHF 10,000 into CHF 31,727.95, a return of 5.94% a year, compounded. Missing just the 5 best of roughly 5,000 trading days left CHF 22,789.08 (4.20% a year). Missing the 10 best left CHF 17,742.20 (2.91%), and missing the 20 best CHF 11,877.27 (0.86%). These are our calculations from the SPI's daily closing levels published by SIX, before costs and taxes.

Those best days didn't come in calm times. They came in the middle of crashes, right next to the worst days. Here are ten trading days of the financial crisis in October 2008. The darker bars, 6, 8, 10, 13, 14, 15 and 17 October, are days that rank among the 10 best or the 10 worst of the whole 20 years:

The SPI fell 5.84% on 6 October, 0.66% on the 7th, 5.29% on the 8th, 4.22% on the 9th and 7.25% on the 10th. On the next trading day, 13 October, it rose 10.58%, its best day of the 20 years, and another 4.74% on the 14th. Then it fell 5.40% and 3.27% before rising 5.80% on the 17th.

March 2020 was the same. The SPI fell 9.11% on 12 March, its worst day of the 20 years, rose 5.56% on the 19th, fell 5.11% on the 23rd and rose 6.20% on the 24th. All 10 best days of the 20 years came between September and December 2008 or in March 2020, and 6 of them within two weeks of one of the 10 worst days. Two of the other worst days, 15 and 16 January 2015, came when the Swiss National Bank stopped holding the franc at 1.20 per euro and the franc jumped.

To time the market, you have to be right twice: when to get out and when to get back in. It's tempting to sell after a fall has started, when selling feels safest, and to come back once things look calm, which is usually after the rebound. The days you'd most like to avoid sit right next to the days you can least afford to miss. That's why swings hurt most when you react to them, and why the length of your time horizon matters more than your timing.

One alternative is not to guess at all. Investing a fixed amount at regular intervals, dollar cost averaging, takes the question of when off your hands, and an index fund simply holds the market through good days and bad.

The same data cuts the other way. Someone out of the market on only the 10 worst days would have ended up with CHF 60,791.78. But nobody can sit out the worst days without also missing the best ones next to them. Missing both the 10 best and the 10 worst gives CHF 33,994.62, a little more than staying put gave.

These figures are illustrations, not a strategy. They leave out costs and taxes, assume no interest on the days out of the market, and cover one market over one period.