Cliff Asness: Missing the Best Days Isn’t the Real Problem

Clifford Asness of AQR Capital Management revisits his 1999 rejected paper that challenged one of the most common arguments against market timing. The widespread belief that missing just a few of the market’s best days destroys long-term returns is fundamentally flawed, according to Asness.

His analysis shows that while missing the best performing days does hurt returns, missing the worst performing days provides symmetrical benefits. The author demonstrates through both historical data and simulations that this “evidence” against market timing is mathematically obvious and essentially useless for investment decision-making.

Asness argues that legitimate criticisms of market timing should focus on investors’ lack of skill rather than cherry-picked scenarios of perfect incompetence. His 25+ years of out-of-sample data confirms these findings, showing the argument remains as flawed today as it was when first proposed.

Here are the key takeaways:

• The common argument that missing the market’s best days ruins returns is symmetric – missing the worst days provides equal benefits, making it a meaningless exercise in perfect hindsight.

• Realistic market timing strategies involve modest portfolio shifts (like moving from 80% to 60% stocks), not the extreme 100% in-or-out scenarios typically cited in anti-timing arguments.

• The mathematical effects of missing extreme days are predictable from normal distribution theory and aren’t unique or surprising features of stock markets.

• Market timing criticism should focus on investors’ lack of predictive skill and transaction costs rather than hypothetical scenarios of perfect bad timing.

• Out-of-sample evidence from 1997-2024 confirms Clifford’s original findings, with the costs and benefits of market timing remaining symmetrical across different time periods.