Can you beat the S&P 500 by owning more of it at the right moments?
Didn't work · 22 Oct 2026 · 6 min read
Short answer: No. The best rule, owning twice as much after sharp short drops, looked great on 1994–2021, failed badly on 1962–1992, and did no better than holding in five other countries' markets.
A gentler kind of market timing
Most market timing is all or nothing: you're either in the market or out of it. That's risky, because the best days often come right after the worst ones, and if you're out, you miss them.
So here's a gentler idea. Always own the S&P 500, but change how much you own. When the odds look good, own a bit more, up to twice your money (borrowing the rest). When they look poor, own less. You're never fully out, so you never miss the big days.
I tested three popular versions of this idea. One of them looked excellent on 28 years of US data. Then I tested it on years and markets it had never seen, and it fell apart.
The three ideas
1. Calm or stormy. Own more when the market has been calm lately, and less when it has been jumpy. Professionals call this "volatility targeting": the aim is to keep the size of your ups and downs steady.
2. Turn of the month. Own more during the last few and first few days of each month. That's when salaries and pension contributions tend to flow into the market.
3. After a sharp drop. When the market has fallen sharply over two days, own 1.5 or 2 times your money. Go back to normal once the price recovers above its average of the last five days, or after ten days at most.
Owning more than your money means borrowing, which isn't free. I charged interest at the US Treasury bill rate plus 1% a year on the borrowed part, plus a small cost (0.05%) every time the amount changed.
The trap: more is usually more
Here's something that fooled me at first. In a market that rises over time, owning more of it makes more money. If a rule owns, on average, 1.2 times your money, it will usually beat plain holding. That isn't clever timing; it's just more risk.
So for every rule, I also tested a dull twin: own the same average amount all the time, never changing. If the rule averages 1.2 times your money, its twin simply owns 1.2 times, every day.
A rule only shows real timing skill if it beats both plain holding and its dull twin.
Round 1: picking the best rule (US, 1994–2021)
I used daily prices of SPY, the oldest S&P 500 fund, with dividends. Over these 28 years, 100,000 simply held grew to about 1.7 million.
| Approach | Return a year | 100,000 became about | Worst drop |
|---|---|---|---|
| Simply holding | 10.6% | 1.7 million | −55% |
| Calm or stormy, up to 2x | 9.9% | 1.4 million | −44% |
| … its dull twin | 11.0% | 1.9 million | |
| Turn of the month, 2x | 12.0% | 2.4 million | −63% |
| … its dull twin | 11.6% | 2.2 million | |
| After a sharp drop, 2x | 13.6% | 3.6 million | −56% |
| … its dull twin | 11.4% | 2.1 million |
("Return a year" is the average yearly growth, compounded. "Worst drop" is the biggest fall from a peak to a later low.)
- Calm or stormy lost to its own twin and to plain holding. No skill.
- Turn of the month beat both, but its worst drop (−63%) was much deeper than holding's, and I had decided in advance not to accept that.
- After a sharp drop, 2x beat both clearly, with about the same worst drop as holding. This was the winner: 3.6 million instead of 1.7 million.
Two milder versions also beat both comparisons, by smaller margins: turn of the month at 1.5x (11.4% a year against 11.1% for its twin), and after a sharp drop at 1.5x (12.2% a year). I had decided in advance to take only the single best rule forward, so these two were never tested further.
One warning sign was already there. All of the winner's advantage came before 2009. It beat holding by about 10 percentage points a year in 1994–1999 and about 4 points a year in 2000–2009, then did slightly worse than holding from 2010 to 2021.
Round 2: years the rule had never seen
A rule picked as "the best of several" on one period will almost always look good on that period. The real question is how it does on years it hasn't seen. I had kept two such periods aside, and ran the winning rule on each, once, without changing anything.
US, 1962–1992 (31 years, before SPY existed):
| Approach | Return a year | 100,000 became about | Worst drop |
|---|---|---|---|
| Simply holding | 9.8% | 1.8 million | −45% |
| After a sharp drop, 2x | 4.0% | 340,000 | −73% |
| … its dull twin | 9.9% | 1.9 million |
A disaster: about a fifth of the money, and a much deeper drop.
US, 2022 to October 2026 (almost five years):
| Approach | Return a year | 100,000 became about | Worst drop |
|---|---|---|---|
| Simply holding | 12.0% | 173,000 | −24.5% |
| After a sharp drop, 2x | 21.2% | 253,000 | −26.6% |
| … its dull twin | 12.9% | 180,000 |
A clear success.
So the two unseen periods disagreed completely. I needed a tie-breaker.
Round 3: five other countries
I ran the same unchanged rule on five other stock markets, from 2008 to October 2026. Before looking, I set the bar: it had to beat plain holding and its twin, without a much deeper drop, in at least four of the five.
| Market | Simply holding | After a sharp drop, 2x | Worst drop: holding vs rule |
|---|---|---|---|
| India (Nifty 50) | 7.4% a year | 3.6% a year | −60% vs −73% |
| Japan (Nikkei 225) | 8.2% a year | 9.5% a year | −54% vs −60% |
| Germany (DAX) | 6.2% a year | 5.6% a year | −55% vs −64% |
| UK (FTSE 100) | 2.7% a year | 3.1% a year | −46% vs −51% |
| Hong Kong (Hang Seng) | −0.8% a year | −6.0% a year | −60% vs −81% |
It passed in none of them. In India, Germany and Hong Kong it made less than holding. In Japan and the UK it made a little more, but with deeper drops. Everywhere, the worst drop got worse.
Over the same years in the US, the rule made 14.0% a year against 11.2% for holding. The US was the exception, not the rule.
Why it didn't hold up
Owning more after sharp drops worked in the US in some periods (1994 to 2008, and 2022 to 2026) and not in others (1962 to 1992, and 2009 to 2021). It didn't work in other countries. That looks like a habit of certain stretches of US history, not a lasting edge. If I had shown you only the 2022–2026 result, it would have looked brilliant, and it would have been misleading.
What I took from it
Owning more "at the right moments" mostly just adds risk. The fair question isn't "did it beat holding?" but "did it beat owning the same average amount all the time?". The rule that did best on that question failed on unseen years and in other markets. The two runners-up beat it by only small margins and were never tested on unseen years, so they aren't evidence of an edge either.