A Handful of Days

"Recently, a group called Dimensional Funds studied the performance of the S&P 500 from January 1970 to December 2006, during which time the annualized return of the market was 11.1%. They also noted something amazing: Of those 36 years from 1970 to 1986, if you missed the 25 days when the stock market performed the best, your return would have dropped from 11.1% to 7.6%, a crippling difference.

Now, if only we could know the best investing days ahead of time.
"
I keep running into this quote, verbatim including the 36 years from 1970 to 1986, which is actually a 16 year time frame, so I assume they mean 2006. I also assume that it's no longer recent, after all who would do a study that abruptly stops at the most significant economic event in recent history. Anyway, I suspect that there's a touch of insanity and twisting of the facts at work here. I'm not going to study 36 years, but I have kind of noticed something about the best investing days and I think we're missing something very important here.
Year to date, there have been four days when the TSX went up more than 400 points. Those four days amount to a total of 2371.58 points. That's a very impressive sum. Even if you compare it to the peak of 15073.13, which happened on June 18, 2008 instead of today's close of 9600.18 it is still impressive.
I put forth the assertion that yes we do know when these days are but no, it doesn't make all that huge of a difference.

And for another good quote, "Please excuse the crudity of this model, I didn't have time to build it to scale or to paint it." Shown here are the best four investing days of the Toronto Stock Exchange in the year thus far. When do they occur? They occur during downward trends when the "Gee, things are getting cheap" people are joined by the "Wait a sec, we're really over reacting" group. One and four are perhaps the best examples of this due to my arbitrary cropping. I'll take a wild stab in the dark and assume that over the last 36 years the very best of the best have also happened like this. My hypothesis is partially based on the largest of the bit ones in my ever so limited time frame study, #3 at 848pts, is huge compared to all the day to day movements I can remember. Unless you're an ultra agile day trader who can move a fortune in minutes, you realistically can't avoid the best trading days. So if you were to miss them, maybe you'd be out of the market for at least a week. You also wouldn't be back in the very next day. In addition to missing the best day, you'd miss a huge drop and a bit of the settling down afterwards (and I regret not leaving enough to show whether that was generally upwards or downwards). Counter-intuitively, you'd probably get a better return trying to miss the best days rather than moving money into the market in anticipation of the best days.
Of course, this being the end of one of the worst weeks that I can recall, I'll have to say that maybe if we focused on a longer time period like months or years, this would have some meaning.
To toss one more thing out there, one of my other observations about the market is that the intraday swings can be quite powerful as well. If we did a study on cutting the best one hour stretches of trading from an index's multi-decade return I'm sure it would have some ridiculously disproportional impact as well and people would be quoting it out of context and talking about it as if it held some profound meaning.