2008 was a tough year for equity market participants. More than a decade of global stock market wealth-creation was wiped out and the US stock market experienced its second worst calendar year in almost two centuries. South Africa was not immune and our equity market experienced its worst calendar year fall since 1970.

In such a volatile environment it is easy for some investors to become despondent and wish they had tried to time the market. Timing the market means aiming to get into the market before prices rise, enjoying the rise up and then getting out before prices fall.

In theory, if investors had been able to get their market timing correct, they would have increased their returns substantially. For example, if you were invested in equities since 1996 and adopted a buy-and-hold strategy, staying invested in the market through good and bad times, your return would have been approximately 14 percent per annum.

The fictitious perfect market timer

If you were the fictitious perfect market timer and you had managed to miss the worst day of the year, your return would have been approximately 20 percent per year. If you had missed the six worst days per year, your return would have increased to approximately 40 percent per year. Finally, this return would have increased to a staggering 70 percent if you had missed the 15 worst days per year.

Unfortunately, it?s not that simple. In order to time the market correctly, you need to be able to predict the future direction of the market. This would entail knowing precisely when the market will peak and trough, which is a fanciful idea so this approach amounts to nothing more than a desire to be extremely lucky all of the time!

Besides it being unlikely that you will be able to identify the worst days before they happen, trying to time the market means you might also miss the best days too. Let?s assume that instead of missing out on the worst days you only missed out on the good days. If you only missed out on the best four days each year your return from equities would be less than zero! When trying to time the market, the consequence of even the smallest imperfection in the strategy is dramatic.

Returns less than a buy-and-hold strategy

You may think that if you missed both good and bad days surely that would take the pressure off a bit; unfortunately not. Even if you missed out on the worst five days each year and you missed out on the six best days too your return would still be less than that from a buy-and-hold strategy.

This is a much researched topic with many studies showing that market timing has not had encouraging results. One study published in the Financial Analyst Journal, using US data from 1926 to 1999 concluded that the buy-and-hold strategy beat market timing 99.8 percent of the time! To further support the findings above, John C. Bogle, founder and CEO of the Vanguard Group, a mutual fund management company, said: "After nearly fifty years in this business, I do not know of anybody who has done it successfully. I do not even know anybody who knows anybody who has done it successfully and continuously".

It all comes down to the old cliche: "It?s time in and not timing the market that counts". For example, the 14 percent per annum return from simply holding equities have comfortably outperformed inflation since 1996, despite the difficult 2008. One needs to be patient enough to ride out the downturns. Just staying invested in the market and allowing your returns to quietly compound over time, is what matters. So, be goal-oriented and patiently stick to your long-term investment strategy.

Ashveena Teeluckdharry is a Quantitative Analyst at PPS Investments