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Your Returns are Not too Different if You Time Your Market Entries Well Versus Buy and Hold. Data across Different International Markets

If you are the best market timer in history, you should easily do better than someone who just adds and adds without thinking, isn’t it?

It is likely the result between buying and holds and market timing is not too different.

Ben Carlson over at Wealth of Common Sense points out this splendid work done by Gaspar Fierro, a blogger at Spanish website Rankia > The best investor in history (note this is in Spanish. Use Google Translate to translate it)

Gaspar created a comparison between two hypothetical investors. One investor (B&H guy) is buy-and-hold by dollar-cost averaging over time while the other investor (The Great Market Timer) will only invest if the market goes down by a certain percentage.

Here are the rules Gaspar built-in:

  • The Great Market Timer invest in MSCI Index, be it in major countries index specified below, or major MSCI World index
  • The Great Market Timer starts with $1000 and starts saving $50 monthly
  • Suppose the Great Market Timer can see into the future, and in the next 52 weeks, if the price is 17% from the bottom, he will dump whatever $50 saved up till then into the index. If the price plunges but does not reach 17% from the bottom, he does not add to it. This is also assuming that no one can get the bottom right consistently but that you always put in lower than the B&H guy
  • To compare to the Great Market Timer, the B&H guy puts in $1000 in the same index. He saves $50 monthly and after 12 months, he invests the accumulated sum
  • Both investors do not sell
  • Dividends are reinvested
  • The writer uses monthly closing prices.
  • The time range is fixed
  • B&H and Great Market Timer starts on the same day

Gaspar did this for many different markets and the result of his work is tabulated below:

Click to view a larger table

Gaspar uses the available MSCI data for the various market which mostly started in 1970. Thus he has at least 40 years of data under his belt.

As Singaporeans, you will be disappointed with no Singapore index, but there are Hong Kong and MSCI World Index

There are a few things you would notice.

First thing first, market timing has a better result (refer to the last 3 columns, B&H vs B&H|Buy the bottom).

But the most surprising thing to both the author and Ben (as well as myself):

The difference isn’t that much.

The author cites some reasons why the result is so close:

  1. The Great Market Timer missed out on much of the dividend yields. This is because he only buys during rebounds, recoveries and expansions
  2. The price of his holdings is often higher than the criteria for him to get invested. Since equity markets generally head up, he didn’t get much opportunity to get invested, due to that strict rule
  3. Lack of the compounding effect

You can make use of the data in the following ways:

  1. It is quite difficult to have a crystal ball and be right market timing correctly every time
  2. Buy and hold is the easier method, but you have to stomach the max drawdown (refer to MaxDD)
  3. Dividends Reinvestment is a big part of the equation
  4. Your mileage may vary
  5. At least someone did some data other than US data!

Wealth builders like ourselves can invest in low-cost, exchange-traded funds that track the indices Gaspar uses.

You can read more in some of the articles below:

I do have a few other data-driven Index ETF articles. These are suitable if you are interested in constructing a low-cost, well-diversified, passive portfolio.

You can check them out here:

  1. IWDA vs VWRA – Are Significant Performance Differences Between the Two Low-Cost ETFs?
  2. The Beauty of High Yield Bond Funds – What the Data Tells Us
  3. Searching for Higher Yield in Emerging Market Bonds
  4. The performance of investing in stocks that can Grow their Dividends for 7/10 years
  5. Should We Add MSCI World Small-Cap ETF (WSML) to Our Passive Portfolio?
  6. Review of the LionGlobal Infinity Global – A MSCI World Unit Trust Available for CPF OA Investment
  7. 222 Years of 60/40 Portfolio Shows Us Balanced Portfolio Corrections are Pretty Mild
  8. Actively managed funds versus Passive Peers Over the Longer Run – Data
  9. International Stocks vs the USA before 2010 – Data
  10. S&P 500 Index vs MSCI World Index Performance Differences Over One and Ten Year Periods – Data

Here are some supplements to sharpen your edge on low-cost, passive ETF investing:

  1. Can You Better Time Your Annual Investment Base on Market Seasonality?

Those who wish to set up their portfolio to capture better returns believe that certain factors such as value, size, quality, momentum and low volatility would do well over time and are willing to harvest these factors through ETFs and funds over time, here are some articles to get you started on factor investing passively:

  1. Introduction to factor investing / Smart Beta investing.
  2. IFSW – The iShares MSCI World Multi-factor ETF
  3. IWMO – The iShares MSCI World Momentum ETF
  4. Investing in companies with strong economic moats through MOAT and GOAT.
  5. Robeco’s research into 151 years of Low Volatility Factor – Market returns with lower volatility that did well in different market regimes
  6. JPGL vs IFSW vs Dimensional Global Core vs SWDA – 22 years of 5-year and 10-year Rolling Returns Performance Comparison

If you want to trade these stocks I mentioned, you can open an account with Interactive Brokers. Interactive Brokers is the leading low-cost and efficient broker I use and trust to invest & trade my holdings in Singapore, the United States, London Stock Exchange and Hong Kong Stock Exchange. They allow you to trade stocks, ETFs, options, futures, forex, bonds and funds worldwide from a single integrated account.

You can read more about my thoughts about Interactive Brokers in this Interactive Brokers Deep Dive Series, starting with how to create & fund your Interactive Brokers account easily.

I invested in a diversified portfolio of exchange-traded funds (ETF) and stocks listed in the US, Hong Kong and London.

My preferred broker to trade and custodize my investments is Interactive Brokers. Interactive Brokers allow you to trade in the US, UK, Europe, Singapore, Hong Kong and many other markets. Options as well. There are no minimum monthly charges, very low forex fees for currency exchange, very low commissions for various markets.

To find out more visit Interactive Brokers today.

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I break down my resources according to these topics:

  1. Building Your Wealth Foundation – If you know and apply these simple financial concepts, your long term wealth should be pretty well managed. Find out what they are
  2. Active Investing – For active stock investors. My deeper thoughts from my stock investing experience
  3. Learning about REITs – My Free “Course” on REIT Investing for Beginners and Seasoned Investors
  4. Dividend Stock Tracker – Track all the common 4-10% yielding dividend stocks in SG
  5. Free Stock Portfolio Tracking Google Sheets that many love
  6. Retirement Planning, Financial Independence and Spending down money – My deep dive into how much you need to achieve these, and the different ways you can be financially free
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