Picture this scenario. An investor takes a lump sum and invests it in broad-market ASX fund. It sits quietly for decades accumulating. Then comes March 2020 and the portfolio tumbles 20%. Our investor panics and pulls their money out to wait for the bottom. By May, with markets moving up again, they reinvest the proceeds. Good timing?

No. Our investor missed the stock market’s best month in two decades. Someone who invested $10,000 in January 2001 would have $63,500 by last December. Missing just April 2020 shaves $6,000 off the final sum. Remove the two best months of the last twenty years, April and November 2020, and the portfolio falls to $53,000, a 20% haircut. Bad timing.

Timing the market is perilous because decades of stock market returns hinge on critical days and months. US stocks outperformed cash between 1926 and 2018 thanks to just 51 months of performance, according to Morningstar research. Miss those and you may as well have kept the money under a mattress. Put simply, patience is key.

“The pain of a falling market is real, and we can all feel it,” says Ian Tam, an investment specialist at Morningstar.

“This said, the long-term pain of missing a day of investment returns won’t likely be felt until years later, especially if that day happens to be a big one.”

The chart below shows how missing the five best months since 2001 leaves a portfolio 33% smaller. It doesn’t include the fees and capital gains taxes that come with investors buying and selling to time markets.

Investors are currently feeling the pain of falling markets. The high-flying Nasdaq Composite is down 13% this year as selling spreads from troubled small caps to the inner sanctum of technology mega-caps. Netflix shed 35%, almost all its pandemic gains. Local markets are down too, with the S&P/ASX 200 having fallen 6% since the year began.

The instinct to panic is understandable, but for those mulling a quick exit, selling brings its own problems. Charlie Munger, vice chairman of Berkshire Hathaway points out that selling for market-timing purposes gives investors two ways to be wrong: the decline may or may not occur, and if it does, you’ll have to figure out when the time is right to go back in.

Take the covid selloff. Few predicted shares would post their best month in two decades as covid lockdowns forced 81% of the world’s workforce into one or other type of restriction. But those who stayed invested were rewarded.

Downturns are also an opportunity to profit off panic. Sarah Newcomb argues investors should replace fear with excitement and get searching for great discounts on companies that may once have been overpriced.

The data suggests several other reasons why patience is virtuous. Not only are the moments of crucial performance few, but they are far between. The best months for the Morningstar Australia index ranged from 2001 to 2020.

Markets tend to move upwards over time, but the data shows investors need to endure lengthy interregnums where little happens. Between January 2001 and March 2003, the Morningstar Australia index grew just 0.85%.

Finally, history shows stock markets are kind to long-term investors. Research from the Reserve Bank estimated the inflation-adjusted equity market return an average of 6% over the past century. The Federal Reserve Bank of San Francisco arrived at a similar figure for 15 other developed market economies going all the way back to 1870.

As Howard Marks, billionaire founder of Oaktree Capital Management, put it bluntly last week:

“Reducing market exposure through ill-conceived selling—and thus failing to participate fully in the markets’ positive long-term trend—is a cardinal sin in investing.”