US Stock Market Achieves a Return of 17,715%


By Dale Gillham |


This year has been a roller coaster for the Australian stock market given that it achieved a new all-time high before falling over 11 per cent in January. February was a similar story, as the market rose strongly for two weeks before falling heavily over the following two weeks. This volatility, together with the speculation around inflation, interest rates and now the Russian invasion of the Ukraine, has caused some investors to panic and exit the market, while others have chosen to remain in the market to ride out the swings. But is this wise?

Why a buy and hold strategy is not the answer

I recently read an article from CNBC based on research from the Bank of America about the difficulties of timing the market, which showed the returns for each decade on the S&P500 from 1930 to 2020. The research indicated that if you bought and held during that time, your return would have been 17,715 per cent. They also provided returns on portfolios that excluded the best and worst 10 days in each decade.

As justification for promoting a buy and hold strategy, investors are constantly told that if we miss the best 10 days when the market is rising our return will reduce substantially. However, since I launched my bestselling book “How to Beat the Managed Funds by 20%” over two decades ago, I have been educating investors that this assumption is incorrect and that the opposite is actually true because if you avoid the 10 worst days your returns would increase substantially. The research from the Bank of America now substantiates what I have been teaching our clients.

While the buy and hold strategy achieved a return of 17,715 per cent, if you avoided the 10 best days each decade the return was a measly 28 per cent. But if you were out of the market on the 10 worst days, your return would have been a massive 3,793,787 per cent or over 21,000 per cent better than the buy and hold strategy.

While I don’t advocate that investors panic and sell or react emotionally to news and speculation, it is obvious from the research that being a little more proactive with your investments by avoiding the large downturns in the stock market is a far better strategy for your portfolio in the long run.

What were the best and worst performing sectors last week?

The best performing sectors included Energy up 8.85 per cent followed by Materials up 8.14 per cent and Utilities up 0.93 per cent. The worst performing sectors included Consumer Staples down 1.64 per cent followed by Financials down 1.52 per cent and Healthcare down 0.91 per cent.

The best performers in the S&P/ASX top 100 stocks included Woodside Petroleum up 12.42 per cent followed by Lynas Rare Earths up 12.23 per cent and S32 up 11.90 per cent. The worst performing stocks included Magellan Financial Group down 12.94 per cent followed by QBE Insurance down 9.00 per cent and Virgin Money down 8.62 per cent.

What's next for the Australian stock market? 

In contrast to the prior week, the All Ordinaries Index performed well last week rising 1.67 per cent and erasing around half of the fall from the prior week. However, before you get too excited thinking the down move is over, it is still too early to call an end to the current pullback, therefore, once again, I would urge investors not to get caught up in the emotions of the market.

While it is possible that the market will continue to rise, it is still showing signs of weakness. Given this, there is still a real possibility that the All Ordinaries Index could fall below 7,000 points. To confirm the market is moving up, we need to see price rise this week and preferably above the recent high of 7,646 points. If the market falls this week, then it is highly likely we will experience further falls with the market falling below 7,000 points.

As I have indicated previously, now is the time to be patient and to be looking for good stocks at better prices when the market does settle.

For now, good luck and good trading. 

Dale Gillham is Chief Analyst at Wealth Within and international bestselling author of How to Beat the Managed Funds by 20%. He is also author of the award winning book Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in all good book stores and online.


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