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Where the Black Swans Hide & the 10 Best Days Myth

Meb Faber

Cambria Investment Management

August 1, 2011

Cambria – Quantitative Research Monthly, August 2011

Below we examine market outliers in financial markets. How much effect do these outliers have on long term performance? Can the investor prepare for these anomalies, or are they truly ‘black swans’ that cannot be managed? In this issue we examine numerous global financial markets on daily and monthly time frames. We find that these rare outliers have a massive impact on returns. However, these outliers tend to cluster and the majority of both good and bad outliers occur once markets have already been declining. We critique the “missing the 10-best-days” argument proffered by advocates of buy and hold investing, demonstrating that a significant majority of the 10 best days and the 10 worst days occur in declining markets. We continue to advocate that investors attempt to avoid declining markets where most of the volatility lies, and conclude that market timing and risk management is indeed possible, and beneficial to the investor.

Number of Pages in PDF File: 17

Keywords: black swans, outliers, stocks, bonds, real estate, markets

JEL Classification: G00

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Date posted: August 14, 2011  

Suggested Citation

Faber, Meb, Where the Black Swans Hide & the 10 Best Days Myth (August 1, 2011). Cambria – Quantitative Research Monthly, August 2011. Available at SSRN: https://ssrn.com/abstract=1908469

Contact Information

Meb Faber (Contact Author)
Cambria Investment Management ( email )
2321 Rosecrans Ave
Suite 4270
El Segundo, CA 90245
United States
HOME PAGE: http://www.cambriainvestments.com
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