This article is for general information only. It is not investment advice, and I am not a licensed financial advisor. Historical returns do not predict future results. Decisions about your own money should be made with a qualified professional who knows your circumstances.
You have heard the statistic. Some version of it appears in nearly every argument against trying to time the market: if you had stayed invested in the S&P 500 over the past few decades but happened to miss the ten single best trading days, your final balance would be roughly half what it would otherwise have been.
The number is accurate. Run it yourself on any long return series and you will reproduce it. The conclusion drawn from it — stay invested, don’t try to time — is also, on the whole, good advice.
But the statistic as presented is one half of a calculation, and the other half has been sitting in the academic literature since 1994.
The mirror test
In 1994, H. Nejat Seyhun of the University of Michigan published an analysis of stock returns that asked the obvious symmetrical question: what if, instead of missing the best days, you had missed the worst ones?
The answer is that the gain from avoiding the worst days is at least as large as the loss from missing the best days — typically larger. Javier Estrada later ran the same exercise across international markets in the Journal of Investing, and found the asymmetry pointed the same way: in the Dow series he examined, missing the ten best days cut terminal wealth substantially, while avoiding the ten worst days increased it by considerably more.
This is not a rebuttal of the advice. It is a demonstration that the original statistic proves far less than it is used to prove. If missing the best days is ruinous and avoiding the worst days is spectacular, then the statistic establishes that the extreme days matter enormously — not that market timing fails.
What happens when you run both at once
The genuinely informative test is neither of the one-sided versions. It is: what if a timing strategy caused you to miss both tails?
Mebane Faber ran exactly that test in a 2011 working paper examining the S&P 500 from 1928 onward. Rather than picking a round number of days, he removed the top and bottom 1% of trading days — the entire extreme tail on both sides.
Buy-and-hold delivered an annualised 4.86% on a price basis. The version that missed both extreme tails delivered 5.58%.
Slightly higher. Not dramatically — and Faber’s point was not that anyone can reliably achieve this. It was that the “miss the best days” argument does not survive being run symmetrically.
Why the tails cluster
The reason this works the way it does is the most useful thing in the whole discussion, and it is a genuine finding rather than a rhetorical move.
The best days and the worst days occur in the same market conditions. They are not scattered evenly across history. Both cluster in periods of high volatility, and the extreme days very often sit within a week or two of one another.
October 2008 contains some of the worst single-day declines in the index’s history and some of the largest single-day gains. March 2020 has the same signature. The biggest up days are overwhelmingly rebounds inside bear markets, not quiet advances in calm bull markets.
This has a direct consequence for the argument: you cannot miss the best days without being out of the market during a crash. An investor who is out of the market when the 8% up day happens is, almost by construction, an investor who was also out for the 7% down day three sessions earlier. The scenario in the slogan — an investor who somehow misses only the ups — does not describe anyone’s actual behaviour.
What the statistic is really arguing against
The honest version of the case for staying invested does not need the one-sided statistic, and is stronger without it.
The real problem with market timing is not that the up days are magically valuable. It is that timing requires being right twice — getting out near the top and back in near the bottom — and that the behavioural failure mode runs in a specific direction. Investors do not exit calmly at peaks and re-enter calmly at troughs. They panic-sell after declines and return after recoveries are well underway, which produces exactly the pattern of missing the rebound without having avoided the fall.
The gap between fund returns and investor returns has been measured repeatedly by Morningstar and others, and it runs in that direction consistently: the average investor in a fund earns less than the fund itself, because of when they buy and sell.
That is a real, well-evidenced argument. It just isn’t the argument the slogan makes.
Honest limits
Faber’s figures are price returns and exclude dividends, which materially understates long-run equity returns; the comparison between the two lines is what matters, not the absolute levels. The 1% tail definition is one choice among several, and different windows produce somewhat different results.
Most importantly: none of this is a strategy. Faber removed the extreme days after the fact, with perfect knowledge of which they were. No one can do that prospectively. The exercise establishes what the statistic does and does not prove; it does not establish that anyone can beat buy-and-hold.
The part worth keeping
Staying invested is, for most people, the right default — for reasons of cost, taxes, behaviour and the near-impossibility of consistently identifying turning points. That conclusion survives this article intact.
What does not survive is the use of a deliberately one-sided calculation to prove it. When a statistic is always presented with one half of the distribution removed, and the other half has been available in the literature for thirty years, the interesting question is why the fuller version so rarely appears in the sales material.
Sources
- Seyhun HN. Stock Market Extremes and Portfolio Performance. University of Michigan, 1994 (commissioned study).
- Estrada J. Black Swans and Market Timing: How Not to Generate Alpha. Journal of Investing 2008;17(3):20-34.
- Faber MT. Where the Black Swans Hide & The 10 Best Days Myth. Cambria Investment Management working paper, 2011.
- Morningstar. Mind the Gap: investor returns versus fund returns, annual study.
