StanStu #2: Missing the Best Days

Some weeks ago, I came across the what feels like 27th iteration from one of my favorite Standard Stupidities: a hypothetical calculation of what happens to your returns when you miss the best days of the stock market. The issue was even discussed at a conference held by one of the world‘s leading banks, which I attended at the end of 2024. So I decided to write about it once and for all.

Unlike many other Standard Stupidities, this one is technically not false and often actually used with good intentions. But good intentions don’t save something from being misleading, and I believe serious investors should aim for an intellectually honest and evidence-based view.

  • The S&P 500 (obviously) returned less without the best days
  • The S&P 500 (obviously) returned more without the worst days
  • None of it is really useful (and possible) in practice

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StanStu #1: Cash on the Sidelines

Global stock markets currently hover around all-time highs, last year’s performance was tremendously good, and interest rates are back. No wonder that the media and market strategists recently began to spread an old narrative – the idea of Cash on the Sidelines.

The most fundamental feature of markets and a little thinking effort easily destroys the narrative as it is commonly used. But let’s go through it step-by-step…

  • The Narrative of Sidelines
  • The Problem of Sidelines
  • Perspectives Matter
  • Investor-Specific Sidelines
  • The Psychology of Sidelines

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Standard Stupidities: Introduction

It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.

Other people are trying to be smart. All I’m trying to be is non-idiotic. I find that all you have to do to get ahead in life is to be non-idiotic and live a long time. It’s harder to be non-idiotic than most people think.

Charlie Munger Quotes from Chapter 8 of Green (2021)

What is a Standard Stupidity? For me, it is a situation or problem with a clear rational solution which many people still screw up massively.

There is a large supply of Standard Stupidities in investing and I am looking forward to disentangle some of them in this series.

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