Proof You Can’t Time the Stock Market? 1 in 6 People Who Did Went Broke

A recent study from Elm Wealth found that timing the stock market doesn’t work well for most people. The concept was to see whether traders could outperform the stock market if they were given tomorrow’s headlines in advance. More than 90% of them were in graduate finance or MBA programs — people who theoretically should be able to interpret market news more than the average person and act accordingly.

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Here’s what you can learn from what happened so you don’t lose money like they did.

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Elm Wealth’s Study

The Elm Wealth study gathered 118 adults and featured old headlines from 15 trading days. Participants received Wall Street Journal headlines for trading days that took place from 2008 to 2022. Participants had access to these headlines 36 hours in advance of the actual trading day of the study. Elm Wealth designed this study to gauge how traders could perform if they knew major market news in advance.

How Participants Were Able to Trade

Traders were given two instruments for getting exposure to financial markets with advanced knowledge of future events: the S&P 500 and 30-year Treasurys. They were not able to see dollar figures and asset prices during this study.

While it’s a bit limiting since participants couldn’t trade individual stocks, having headlines 36 hours in advance certainly makes up for it.

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The Results

Even though traders had advanced access to headlines and were experienced professionals, most of them didn’t perform well. About 1 out of 6 participants went broke, and more than half of them lost money. The average gain was a measly 3.2%, underperforming the historical annualized returns of the S&P 500.

The Market Can Act Irrationally

The stock market doesn’t always move in the direction people expect. A company can deliver excellent earnings results only for its stock to endure a sharp correction. Financial markets can act irrationally in the short run, and that can still hurt people who have headlines in advance. The market can rally even when the headlines suggest gloomy news, while the reverse can happen despite good news.

That’s why most traders lose money. It’s also part of the reason why that trend continued in the study even though the participants were financial professionals.

Buy and Hold Is a Time-Tested Strategy

You don’t have to monitor the stock market every day to outperform indices like the S&P 500 and the Nasdaq Composite. A buy-and-hold strategy combined with dollar cost averaging can help investors deliver enticing long-term returns. Essentially, you have to find stocks and ETFs that align with your financial goals and then periodically add onto them.

Corrections provide great long-term opportunities, and it can be very profitable to be a contrarian investor who zigs when everyone else zags. While picking the right growth stocks can lead to the highest returns, you can also invest in an ETF that follows a benchmark. Both approaches can help you spend less time in your portfolio while outperforming day traders.

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This article originally appeared on GOBankingRates.com: Proof You Can’t Time the Stock Market? 1 in 6 People Who Did Went Broke