# Timing the market and the best months you miss

> What staying invested earns vs missing the few best months, and why the best months sit next to the worst.

- Course: [Long-Term Investing: Index Funds, Risk and Your Own Behavior](https://productovi.com/courses/long-term-investing.md)
- Module: Can anyone beat the market?
- Lesson 15/32, ~23 min
- Source: https://productovi.com/courses/long-term-investing/timing-best-months

## A sell button with a brain

**Alex Tutor:** Late May at Zapas. The fund-picking idea is parked, and the beta users have started asking a different question in support chats.

**Ethan:** Users keep asking: "Should I sell now and buy back later?" What if we answer with a signal? We warn them before a fall, they step out, and they come back when it's calm.

**Grace:** Let's price the risk of getting it wrong first. We have 40 years of Tessaro World monthly returns, 480 months. Start with \$1,000 at the start of year 1 and hold to the end of year 40.

**Grace:** Then rerun it, but take out a few of the best months, as if you were in cash at 0% exactly then. These are nominal dollars, synthetic data.

**Dataset (CSV):** [1,000 dollars in Tessaro World, years 1–40: staying invested vs missing months (synthetic, nominal)](https://productovi.com/datasets/long-term-investing/timing-best-months/timing_scenarios.csv)

A missed month earns 0%. final_value: dollars at the end of year 40; annual_pct: the yearly rate that gives that value.

**What 1,000 dollars became after 40 years**

| Scenario | Value at the end of year 40 |
| --- | --- |
| In all months | 34550 |
| Missed 5 best | 21739 |
| Missed 10 best | 14528 |
| Missed 20 best | 7163 |
| Missed 10 worst | 82976 |
| Missed 10 best and 10 worst | 34892 |

*Months out of the market, of 480. Nominal dollars, synthetic data.*

> **Exercise:** 1,000 dollars in Tessaro World from the start of year 1 to the end of year 40, nominal (synthetic data). Match each scenario to its final value.

**Sofia:** Ten months out of 480 is about 2% of the time, and the result shrinks to less than half.

**Grace:** Put a number on it. By how much does missing those 10 months cut the final value?

> **Exercise:** Staying invested in all 480 months turns 1,000 dollars into 34,550. Missing only the 10 best months leaves 14,528. By what percentage is the final value lower?

## Where the best months hide

**Ethan:** That's why we need the signal. Our users wouldn't miss the best months, they'd miss the worst. Look: dodging the 10 worst gives \$82,976.

**Grace:** It would, if anyone could name them in advance. Look at where the extremes actually fall. Here are the 10 best and 10 worst months of the 40 years.

**Dataset (CSV):** [The 10 best and 10 worst months of Tessaro World in 40 years (synthetic)](https://productovi.com/datasets/long-term-investing/timing-best-months/timing_extreme_months.csv)

best_year and best_month locate the month; best_pct is its return in %. The same for the worst months.

![In the crash years 21–23, five of the ten best months of 40 years fall between seven of the ten worst ones.](https://productovi.com/courses/long-term-investing/diagrams/m4-l3-best-next-to-worst.png)

*The best month, +11.85%, came right after the worst stretch.*

> **Exercise:** Look at the 10 best and 10 worst months of Tessaro World. Which statements are true? Select all that apply.

**Ethan:** That's hindsight. A real user doesn't see a table of extremes. They see one awful month.

**Grace:** Exactly, so let's play one real user. Say someone sold right after the worst month, year 22 month 3, and waited for calm. Prices calmed down by the start of year 24, and they bought back then.

**Sofia:** Then they sat out year 22 month 5, year 23 month 1 and year 23 month 4. Three of the ten best months of 40 years.

> **Exercise:** A user sells right after the worst month (year 22, month 3) and buys back at the start of year 24, "when it's calm". Using the table of best months, how many of the 10 best months of 40 years did they miss?

**Sofia:** And \$82,976 assumes we dodge exactly the 10 worst months and nothing else.

**Grace:** Which nobody has done. The realistic mistake is to miss some of both, because they sit side by side. Miss the 10 best and the 10 worst together and you end with \$34,892.

> **Exercise:** In the Tessaro data, missing both the 10 best and the 10 worst months ends far above simply staying invested.

**Ethan:** So the signal is a bad idea. But users will still panic in the next fall. What do we show them instead?

**Grace:** Something true and calm. Pick the message that fits what we just saw.

> **Exercise:** After a −9% month, Zapas sends one in-app message to users of the world fund. Which one fits the data?

**Ethan:** Fine. Write me the reply for the user who asked whether to sell now and buy back later. Short, please.

> **Exercise:** A beta user writes to support: "The market looks scary. Should I sell now and buy back when it's calmer?" Write a 2–4 sentence reply from Zapas that uses the 40-year Tessaro data, makes no forecast and gives no personal advice.

**Grace:** Good. That reply works because it was written now, not during a crash. Next week Ethan wants to bring back the star manager idea, together with a hot theme. We'll decide that one with all of May's data.

> **Key ideas**
>
> - 1,000 dollars in all 480 months became 34,550; missing the 10 best months (2.1% of the time) left 14,528, 58% less.
> - The best and worst months cluster: 5 of the 10 best fall in the crash years 21–23, and the best one came right after the worst stretch.
> - Timing must be right twice. Missing both the 10 best and 10 worst ends at 34,892, about where staying invested does, before costs.
> - In a fall, the app states facts and points back to the plan; it never forecasts.

> **Educational, not advice**
>
> This lesson explains how investing works; it doesn't tell you what to buy. Investments can fall and you can get back less than you put in. Check the current rules where you live or ask a licensed professional.

- Previous lesson: [Winners that don't repeat: luck, skill and closed funds](https://productovi.com/courses/long-term-investing/winners-dont-repeat.md)
- Next lesson: [Case: "star manager picks" and a "hot theme" tab](https://productovi.com/courses/long-term-investing/case-star-picks.md)

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