Thread by @dsaleminvestor

One privilege among many of working @Hedgeye is ready access to vast reservoirs of data, including those needed to ponder sensibly a key quandary confronting stewards of long-term capital. Herewith a data-laden 🧵that sheds potentially useful light on this quandary.

@Hedgeye The quandary: given the huge opportunity costs of missing stocks' "best" days, it seems perilous at best for stewards of long-term capital to exit the stock market—materially or wholly—with the aim of re-entering when stocks' expected returns have risen to more attractive levels.

@Hedgeye Make no mistake: such opportunity costs have been huge historically.

@Hedgeye To wit: $1 invested in the S&P 500 from its inception in 1926 through year-end 2022 would've grown to $226 (with dividends reinvested); remove the 10 best days (out of ~24,000!) and the terminal value falls by nearly two-thirds—to a relatively paltry $75.

@Hedgeye Clearly, buy-and-hold is the only rational policy for stewards of long-term capital. Ain't it?

@Hedgeye Wait: reinsert the 10 best days while removing the 10 worst and the terminal value rises to $741—more than 3x that produced by buy-and-hold. Perhaps "market timing" or at least a concerted effort to sidestep major anticipated downturns makes sense after all?

@Hedgeye Wait: isn't it also true that the best days for stocks unfold not during bull markets but rather during bears?

@Hedgeye Indeed it is: of the 10 best days defined by percentage price moves for the S&P 500 since its inception, all 10 occurred during bear markets, with the latter defined as epochs in which the Index slumped at least 20% below its all-time high without regaining it.

@Hedgeye Perhaps needless to say, all of the Index's 10 worst days also unfolded during bear markets as just defined.

@Hedgeye And—crucially—an investor who missed both the 10 best and 10 worst days but was otherwise invested fully in the S&P 500 over its entire history through year-end 2022 would've notched a 245x increase in wealth: ~9% more than the buy-and-hold increase of ~225x flagged above.

@Hedgeye What to make of all this? Lots, including potential policies and strategies I'll be exploring during my breakout session at #HedgeyeLive on 5/6 and in the new @Hedgeye service I'm privileged to be building: #CapitalAllocationPro (CAP).

@Hedgeye DM with your email address if you'd like to lay hands on info about CAP. Thanks.