[Full disclosure: I own the KWEB ETF.  This is NOT investment advice!  Do your own due diligence.]

“Reactive” is a word that sounds passive and negative. People do not like this word. In investing, I like to argue however, “reactive” can be a good thing.

To proactively predict the financial market is an extraordinarily hard thing to do. Proactively predicting companies’ futures is hard — that is why good stock pickers are rare. Predicting the market is harder — that is why there are extremely few investors who can make it big by just market-timing.

I argue, to reactively trade the market, according to the market’s recent past, can be much easier. When an entire market melts down so quickly by so much, sensible investors know the melt-down has to stop eventually. Take the recent case of the KWEB ETF. One, the chance that Chinese equities will all go to zero is extremely extremely low. Two, the selling will have to stop at some point — the market will run out of sellers and the sellers will run out of stocks to sell. It is not guessing people’s mood. It is physical. When that moment arrives, “reactive” investors who pay attention are rewarded with something: in those worst moments, investors who are not freaking out and who are still paying attention can actually “see” the near future for a very brief moment. What do they see? The market is running out of sellers! Who is still left? Buyers! So what? The market will have no choice but to go up! The market will go up!

That was why the last several days were a good time to buy the KWEB ETF. Today, KWEB is up >10%.

How about now? How about tomorrow? Of course, I do not know. But what I do know is the following, and let me quote Charley Ellis’ Winning the Loser’s Game:

Investment history documents conclusively that the very first weeks of a market recovery produce a substantial proportion of all the gains that will eventually be experienced. Yet it is at the crucial market bottom that a market timer is most likely to be out of the market—and thereby missing the very best part of the recovery gains.

How many >10% days has KWEB ever had in its entire history (2013 to now)? Two (7/28/2021, and today). How many >7% days? Six.

If you invest in KWEB from its beginning in 2013 and hold it until now, you earn 13.9% a year. If you miss all that six big days, you earn 4.1% a year.

Read those two percentage numbers again. Feel the mass-destruction power of “missing the big days.”

That is why market-timing doesn’t work. If you miss any one of these key days, your long-term investing experience will be very different. It is just math. Today, to be precise, is the No.1 largest gain day in KWEB’s history. Investors can hardly afford to miss it.

Back to where I started —

“Reactive” can be a good thing.

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