Why is market timing so hard? Maybe it is because the majority of bull market1 returns straddle bear markets. Market timers risk sacrificing the most beneficial portions of a bull market even if they slightly misjudge the market peak and trough. Getting in too late or getting out too early can leave a lot of return on the table.
1Our definition of a bull market is met when the market has produced a minimum return of 50% from the trough and is sustained for at least 6 months.
Sources: Bloomberg, Robert Shiller (Yale University)
There have been nine S&P 500 bull markets since 1935 (excluding the current one). The first started in March of 1935. The last ended in October of 2007. The chart above considers all nine, subdividing each into four equal time periods (e.g. a bull market that lasted four years would be divided into four separate periods of one year). We then determined what portion of the total bull market return occurred in each quartile. We found, on average, that over two-thirds of bull market returns have occurred in the first quarter (early cycle) and last quarter (late cycle) of bull markets.
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