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  • Writer's picturePatrick Ling

Time in the Model Beats Time in the Market

There is a common saying that time in the market beats market timing. This is often used by long-term stock investors to justify buying and holding stocks through thick and thin. This makes a lot of sense if you look at the long-term chart of the S&P 500 going back to 1927.

Notice how the chart went parabolic despite the major dips of more than 50% in between. By the way, there are many more significant drops in the earlier years but because this is a linear chart, the earlier dips cannot be seen. You will see a clearer picture if we look at the drawdown chart below.

You can see that the ride over this entire period is far from smooth. Drastic drops of more than 30% are rather frequent. In fact, the period from 1929 to 1954 is the worst because not only did you suffer a loss of almost 90%, you had to wait almost 30 years before you break even. Actually, you still lost to inflation. You might say that this period belongs to the old world and will never repeat but let’s look at a more recent example in another country, Japan.

Japan is still trying to recover from the last bubble burst in the late 80s. Let’s look at the drawdown chart to see a clearer picture.

Notice how Japan went through a period in the early 80s where it looked like Japan had banished severe drawdowns for good. However, this assumption was quickly proven false as Japan went into a period known as the "lost decades".

Spending time in the market is like choosing to fly on a plane without stabilizers. The pilot tells you not to worry but every time turbulent hits and you drop 20,000 feet in double quick time, you cannot help but wonder whether you can reach your destination.

What about time in the model?

Now, let’s look at how the experience is like if we spend time in the multi-strategy model taught in our "Complete Multi-Strategy Investing" course.

Some may say that this is an unfair comparison as the period does not go as far back as the market examples. Fair enough but this period does include some very difficult years including the Great Financial Crisis in 2008 and 2020 where COVID-19 wreaked havoc. It’s fair to say that you cannot tell that these things happened by looking at the chart. Let’s look at the drawdown chart now.

The drawdowns are all within a comfortable range of less than 10%. Furthermore, each drawdown is recovered in a reasonably short time. Again, you cannot tell that the Great Financial Crisis and COVID-19 happened during this period.

Spending time in the multi-strategy model is like flying on a plane with the most advanced stabilizers. The plane can fly through the harshest storms and you can still sleep soundly or enjoy a good in-flight meal.

So, would you rather spend time in the market or time in the model? The answer should be clear.

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