John Carey, Portfolio Manager
Doug Famigletti, Portfolio Manager
Trying to time the market has historically proven to be a losing game for investors. In fact, the success rate of market timing is only 25% (a 50% probability of being correct when getting out multiplied by a 50% probability of being correct when getting back into the stock market). In other words, one would have the same odds of success correctly guessing heads or tails twice in a row on two consecutive coin tosses. Despite these facts, emotion still gets the best of many investors who, unfortunately, sell at the wrong time and not only miss out on opportunities for big gains but pay unnecessary capital gains taxes in the process. Consider the following chart from JP Morgan Asset Management that illustrates how missing the market’s 10 best days can cut your total return by more than half. Missing the market’s 60 best days can cut your total return by more than 13%.
It’s important during tumultuous economic times to fight the pain and remain invested. At Griffin, many of our clients have remained invested in equities and ridden through downturns to benefit in the long-term. In almost all cases, the stocks our clients own are high quality, leading companies with sustainable competitive advantages. If you look just beyond the near-term fear and volatility associated with the markets, it’s easy to see how a high-quality company with a sustainable competitive advantage will report higher sales, earnings and asset value prices just 2-3 years out. The stock prices should follow suit and, in some cases, be meaningfully higher as a result.