What is the best way to time the market?

What is the best way to time the market?

In the sheepish words of Tow Mater from Cars, “To not to…”

The ‘experts’ say that people need to see or hear a message at least seven times before they might believe it.  Going back to 1994, we at P&A are well past the 7x mark in professing to you, our clients, that trying to time the market is not an investment strategy.  Even so, human instinct still kicks in for many of us (yes, we are included), so it bears repeating again.  This go-around, we will take an approach focused on probabilities of success.

Positive trading days, weeks, months

Going back 50 years (from May 2020), we see that the S&P 500 has traded positive 53.7% of all trading days, 57.3% of all trading weeks, and 63.2% of all trading months.

Takeaway #1: Lengthening our holding period increases your chance for positive returns.

Waiting for the next ‘pullback’

Viewing that same 50-year time frame, we see that only 23% of all trading days are spent -10% from the 52-week high.  Taking this a step further, only 8.6%% of all trading days are spent -20% from the 52-week high

Takeaway #2:  Using history as our guide, if we are waiting for a -10% pullback to invest, we only have a 23% chance of being right.  If we are waiting for a -20% pullback, we have an even less likely 8.6% chance of being right.**    

Bringing it all together

The graph below shows the infrequency in which the market trades below 10% or 20% of 52-week highs.  The white portion of this graph depicts the frequency at which the market is trending higher.

Furthermore, waiting for the next pullback can be costly.  For example, in 2012, the great recession was still fresh in many investors’ minds, having experienced TWO 10%+ pullbacks in 2011 and 2012.  As a result, many investors remained skittish and on the sidelines.  Those investors saw the market appreciate +100% before the next -10% move…and +250% before another ‘bear’ market of -20% (March 2020). 

Takeaway #3:  Over the past 50 years we have seen:  SIX Bear Markets (-20% or more), TWENTY-ONE Corrections (-10% or more), and yet the annualized return of the market has been +10.88% per year.**

“The past does not repeat itself, but it rhymes” is a quote attributed to Mark Twain.  While the stock market itself is forward-looking, investors only have the past to paint a picture of what the future might hold.  As we’ve said before, in order to get the market return, you must be invested in the market.  The market doesn’t take days off and neither should investors.  Students of history will understand all the events the market has overcome.  Hot and cold wars, depressions, recessions, corrections, civil and social unrest, trade spats, oil embargoes, terrorist attacks…the list goes on and on.


**Past performance does not guarantee future results.

Clicking on the links above may result in you leaving the Pittenger & Anderson, Inc. website. The opinions and ideas expressed on these external websites are those of third-party vendors and Pittenger & Anderson, Inc. has not approved or endorsed any of this third-party content. For the full Terms & Conditions of using the Pittenger & Anderson, Inc. website, click on this link.

Pittenger & Anderson, Inc. does not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any transaction.  Additionally, Pittenger & Anderson does not short stocks.  To learn more about our investment approach, check out our Form ADV.

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Since 1995, Pittenger & Anderson has guided individuals and families going through money-in-motion events. We are a fee-only Registered Investment Advisor and a full-time fiduciary providing investment management, financial planning, and complimentary services to 800+ clients in over 30 U.S. states.

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