Chiding the Fool

I’m actually a fan of the Motley Fool and think they have a lot of good stock pickers on their site.  However, I was greeted to an anti-market timing piece (Say No to Market Timing) from the Motley Fool on Yahoo Finance this morning and nothing stirs my ire more than anti-market timing arguments that trod out the well worn argument that "if you were out of the market for the 10 days when the market rose the most, your average annual return would be much worse than if you just sat on your hands and held through thick or thin." 

This one sided argument is usually trod out by lazy brokers and bad long-only managers to justify their poor performance and give clients a reason to "hang in there".  It’s amazing to me that after the debacle that the NASDAQ and the Fool portfolios suffered in 2000 and 2001, that they would even allow such poorly researched articles to be published. 

The problem with the "10 best days argument" is that it doesn’t account for what would have happened if you also missed the 10 worst days.  And it turns out the worst days are really, really bad and if you used any type of reasonable market timing system, you would probably avoid them.  The "10 best days" is a one sided argument that ignores the most important stock market rule – "stay in the game." 

Here is the truth.  Even if investors were to miss the best days and the worst days in the market, they would still have been better off than the “buy and hold” for having avoided the worst days. 

The next time one of your money managers uses the "10 best days" argument to justify poor performance, I would suggest you immediately take your money and run.  Its a sign of weak logical argument which it probably pervades the money manager’s stock picking as well.