To look at a longer period, if you invested $1,000 in the ASX 300 in June 1992 through to December 2011 - you would have achieved 8.8%pa average return - $5,232. Not a bad average given that we've had the Gulf War, 911, the Afghan War and a GFC during that period. However if you missed only the best 15 days in that 19 year period, because you retreated to cash when the world looked uncertain and markets got volatile, or perhaps you got concerned about what the European Debt crisis would mean for stock prices, then your average annual return would have dropped to 5.1%pa or only $2,641.
Unfortunately fear drives many investors to miss the returns that are available to them. They're convinced that they know something that the market doesn't. It's just not true - the market is efficient at taking all new information and factoring it into prices very quickly. We are more globalised than ever and whilst pricing mistakes can happen, it's not as often as you think.
It doesn't help investors that most economists don't get it right either. In the SMH/Age Economists survey on Jan 6 2008, 28 leading economists forecast that the $AUD would go up to $0.90 US cents (from 88c), the cash rate would go up to 7.5% (from 6.75%) and that the ASX 200 would go up 8% to 6800. What actually happened was that the AUD dropped to 70 US cents, the cash rate dropped to 4.35% and the ASX 200 was down 41% to 3722.
Then in Dec 2010, the same SMH/Age Survey (21 economists) forecast the AUD down 10% - it went up 5%, forecast the cash rate to go up to 5.25% from 4.75% and it went down to 4.25% and that the ASX 200 would go up 8% to 5169 and it went down by 14.5% to 4056.
The video clip below, The Investment Answer, provides some useful insight.
The lesson is to realise that market timing will cost you more than it will save you. Successful investing does not require a crystal ball - it requires discipline.