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The thing about missing drawdowns

 

The thing about missing drawdowns

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Josh here – Michael and I discuss one of our very favorite topics on today’s Live From The Compound – should you buy and sell when the market crosses above or below the 200-day moving average?

As in most market-related questions, the answer is yes, maybe, but maybe not. As we’ll explain, while there are tactical benefits to using this trend line (or any trend line) as a guide, there are environments in which it acts perfectly, and then environments where it does nothing or even hurts you.

And then, of course, there are all the psychological reasons why this discipline cannot be adhered to by most (any?) investors.

Michael shows that by missing the worst days in the market, which typically occur when the S&P 500 is below its 200-day moving average, you will also miss the best days. And by missing the 25 best days of the market over the last 20 years, an investor’s returns would become indistinguishable from simply taking no risk and investing in five-year Treasury bonds.

All the charts in this video can also be found at Michael’s epic new post, “Miss the Worst Days, Miss the Best Days” below:

Miss the Worst Days, Miss the Best Days (The Irrelevant Investor)

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