New research from the multinational investment bank confirms what many of us knew all along: Investors should never try to time the market.
When it comes to investing in the financial markets, panic selling often leads to missed opportunities – and waiting for the dip could rob you of the most lucrative days to hold a particular asset. Those are the general takeaways of a comprehensive study of the S&P 500 Index conducted by Bank of America.
Using data going back to 1930, Bank of America strategists found that a basic hold strategy would have yielded total returns of 17,715%. If, on the other hand, investors tried to time the market, they could have missed out on the best trading days. Missing just ten of the S&P 500’s best trading days each decade would have diluted the total returns to just 28%.
For many investors, especially inexperienced ones, the natural impulse is to sell following a major downturn. But Bank of America found that the market’s best days often follow from the worst drops. Panic selling on the way down could lead to investors missing the best days. Trying to time the market has been a futile affair. Chart via CNBC
Savita Subramanian, the bank’s head of U.S. equity and quantitative strategy, explained: “Remaining invested during turbulent times can help recover losses following bear markets – it takes about 1,100 trading days on average to recover losses after a bear market.”
Cryptocurrency investors, and especially Bitcoin (BTC) holders, are known for having a low time preference. Industry data routinely shows that over 60% of Bitcoin’s circulating supply hasn’t moved in a year or more, which reflects growing conviction in the digital asset. Even during the latest price surge, only 36% of Bitcoin’s circulating supply has moved in the last six months.
Seasoned crypto holders – who are called HODLers for a meme that originated on the bitcointalk forum in 2013 when a user misspelled the word “hold” in reference to BTC – have become attuned to the fact that timing the market can cost them dearly in the long run.
Like stocks, Bitcoin’s ten best trading days per day are responsible for a significant portion of its gains. During the 2017 bull market, the BTC Price rose an incredible 1,136% in the best ten days of the year.
Some entrepreneurs have tried to apply innovations in artificial intelligence and machine learning to help traders manage their emotions. One example is Stock Cards, a browser extension created to help investors predict and prevent FOMO and panic.
Bitcoin’s long-term investors are reaping the rewards of their HODL strategy, with the 2021 rally reportedly producing thousands of BTC millionaires.