“Eighty percent of success is showing up,” comedian Woody Allen once said. That certainly applies to long-term investing.

In fact, statistics support the fact that the greatest timing risk relative to the stock market is not being invested.

At Midwest Investment Management, we are not “market timers.” We do not know, nor do we try to know, what the market will do over the short term. However, we do know that over the long term, a wellselected portfolio of value stocks should outperform the market and provide less volatility (risk) than the market.

Risky temptation

What is the “siren song” of market timing that captures investors’ psyches and lulls them into thinking they will know when to be in the market and when to be on the sidelines? That temptation rests in the absolute knowledge that if you could know “when to hold ’em and when to fold em” you could significantly outperform the market. That, however, is rather like saying if you know tomorrow’s closing prices on the New York Stock Exchange you can make a fortune.

One of the biggest reasons to avoid market timing is the risk involved in being out of the market—even for a few days.

The chart on page 1 shows that the annual return of the S&P 500, over 20 years, was 9.7%. This data dramatically shows that if you missed the 20 best days in the market (an average of 1 day per year), you would lose over half that average annual return and end up with a 4.7% return. Missing the best 30 days takes the return down to 2.9%. Think about that! Miss only 30 days over 20 years and you miss over 70% of the performance the market provided over the last 20 years. The results for the shorter time periods are even more dramatic.

An impossibility

At Midwest Investment Management, we have concluded that market timing is impossible to do consistently over the long term and the risks of trying, based upon these statistics, are much too great.

We develop investment portfolios that allow our clients to be invested in the market for the long term, using well-selected stocks in quality companies that can grow at sustainable rates. If we are disciplined about the price that we pay for such stocks, those portfolios should provide positive performance in good markets and provide some protection against bad markets. And, if we are there, we will catch those important 10 or 20 or 30 best days.

Norm Klopp’s disciplined long-term investment horizon has produced enviable results. If you are not a Midwest Investment Management client, contact Norm to learn more about the benefits a managed account relationship offers. He can be reached at (216) 830-1135 or nfk@mimllc.com.