Missing just 10 best trading days out of 11,000 cut long-term investors’ wealth by 65%, shows 47-year Sensex data

The analysis shows that staying invested through every session would have multiplied wealth 607 times. Missing just the 10 best days across those 47 years would have reduced that wealth to 213.5 times, or by approx. 65%.

“Missing just the 10 best days reduces terminal wealth from 607.6x to 213.5x. That is roughly a 65% reduction in ending wealth, despite removing only 10 sessions from more than 11,000 trading days,” the report said.

In CAGR, terms the damage looks deceptively small: 12% against 14.50% for the fully invested investor, or 2.5 percentage points of annual underperformance. But compounding turns that small difference into a big gap in final corpus over 47 years.

What if the investor managed to avoid the 10 worst days?

The report shows that an investor who somehow avoided the 10 worst days would have ended with 1,733 times the money, at a 17% CAGR.

“The range is enormous: 213x if the 10 best days are missed versus 1,733x if the 10 worst days are avoided. That is an 8.1x difference in terminal wealth created by just 20 exceptional trading sessions,” the report noted.

As compounding is path dependent, both best and worst days matter over the long-term. However, it is not possible for an investor to predict the best or the worst days in advance.

The report noted that the best and worst days are often clustered around periods of extreme volatility, that is also the time when jittery investors often head for exits.

"The real difficulty is that the best and worst days are often clustered around periods of extreme volatility. Long-term investing is less about forecasting most days and more about surviving the few days that dominate outcomes," the report said.

The September edition of Netra, released on September 5, is themed on hidden risks, and opens with a line from psychologist Daniel Kahneman: “The human mind does not deal with non-events.”

Borrowing Nassim Taleb’s idea of “silent evidence”, it argues that investors see “the surviving companies, successful managers, great entry points and spectacular compounding, but not the bankruptcies, abandoned strategies, lucky escapes, missed days, liquidity that disappeared, or risks that simply failed to materialise this time.”

The broader message of the report, distilled as “we need luck, discipline and affordability”, is that investors cannot control the market’s timetable, but only their own behaviour.