Opinion – From Grain to Grain: We simulated three behaviors and investing in stocks gradually showed the worst result

It is common knowledge that making small and periodic purchases at the supermarket brings savings compared to shopping once a month. However, the same behavior did not produce better returns in the stock market. I simulated three behaviors that readers said they had, and I present the results below.

There are three basic behaviors that readers usually confide in me: buy and hold, buy periodically and buy only when the Ibovespa falls.

I simulated these three behaviors in three periods: in the last 22 years, 10 years and 5 years.

Which behavior do you think presented the best result?
a) invest in Ibovespa in one go;
b) invest periodically, but only after the Ibovespa has a negative return in one month;
c) invest a small amount monthly.

I already gave in the title which was the worst alternative. Even so, I believe you will say that the best alternative would be “b”, that is, invest in the Ibovespa whenever it depreciates.

Intuitively, it makes perfect sense.

However, this behavior is not always what brings the best result.

Since December 1999, that is, in the last 22 years, there have been 120 months in which the Ibovespa had a negative return.

Imagine that you decided to invest BRL 1,000 at the end of all the months in which the Ibovespa was negative. Thus, in the last 22 years you have invested a total of R$ 120 thousand.

At the end of the period, that is, until last Friday, you would have a total invested volume of R$ 439.77 thousand.

Consider now that your budget for investing in stocks is the same, that is, the same R$120,000. And that you had invested all of it at the end of December 1999. Today you would have the amount of R$ 829.57 thousand. Almost double the first situation.

Alternatively, assume you divided the R$120,000 by the 276 months and invested R$436.36 every month since 1999. Today you would have R$405,560.

Realize that the difference between investing only when the stock market goes down or investing every month is not as significant as it was investing all at once.

I have performed the same exercise for the last 10 and 5 years. The order of alternatives was similar.

In the last 10 years, there were 50 months in which the Ibovespa devalued. Therefore, if you invested R$ 1 thousand at the end of all these months, you would have R$ 90.7 thousand today.

If you invested R$50,000 at the beginning of the period, today you would have R$102,790. And if I had invested BRL 416.67 monthly, I would have ended up with BRL 85.27 thousand.

In the last 5 years, in 23 months the Ibovespa has depreciated. Likewise, the investment of R$ 1 thousand at the end of these months resulted today in R$ 28.55 thousand.

The full investment of R$ 23 thousand at the beginning of the period resulted in R$ 36.57 thousand. In the third alternative, if you invested R$ 377.05 monthly, you would end up with R$ 28.26 thousand today.

I’m not saying that investing everything at once is the best behavior. But if you think the market has a positive outlook, trying to get the moment right doesn’t always bring such a differentiated result. Yes, there have been some situations where buying when it drops is better, but for the benefit of the size, I’ll cover it in an upcoming article.

Michael Viriato is an investment advisor and founding partner of Investor’s House

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