Buy, Hold, and Sell!

Chapter 11Buy-Hold Myth #2: Don't Miss the 20 Best Trading Days

Uncle Jed was smoking his corncob pipe on the porch of his mansion when his nephew rushed up waving a couple of brochures.

“Yee haw!” said Jethro. “We are gonna invest in the stock market, and we are gonna clean up!”

“Well, doggies!” said Jed. “That sounds like a fine plan. How's it work?”

“Mr. Drysdale explained it all to me,” said Jethro. “All we do is buy some investments, stick to our guns, and ride out the market. He called it ‘buy-hold.’”

“That's all we do?”

“Yep. We just hafta make sure we don't miss the 20 best days and we'll be sittin' pretty. Lookee here,” he thrust a brochure at his uncle. “It's all right here.”

Jed pulled on his pipe and studied the chart in the first brochure (as shown in Figure 11.1).

Figure 11.1 Missing the Best Trading Days (initial investment of $10,000)

Source: S&P 500, 1985–2010.

“Just look at that!” said Jethro, looking over Jed's shoulder. “Only a durn fool would miss those 20 good days. You gotta stay in the market so you can catch 'em.”

“Hmmm,” said Jed, puffing away on his pipe.

“Look at this other one, too,” said Jethro, handing another brochure to his uncle (see Table 11.1).

Table 11.1 Don't Miss the 20 Best Days

Period of Investment	Average Annual Return of S&P 500 Index
Stayed invested	9.14%
Missed top 5 days	6.93%
Missed top 10 days	5.43%
Missed top 15 ...