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"The adage "keep calm and carry on" might, in the end, be the best advice for investors to follow during times of extreme market volatillity such as the present.

While that might seem counterintuitive to sit back and relax while stocks post swift and steep losses, for investors with longer-term time frames it typially pays to wait it out.

Looking at data going back to 1930, Bank of America found that if an investor missed the S&P 500's 10 best days in each decad, total returns would be just 91%, strikingly below the 14,962% return for investors who held steady throughout the ups and downs."

The firm noted this eye-popping statistic while urging investors to "avoid panic selling," pointing out that "the best days generally follow the worst dats for stocks"

It's nearly impossible to time your investing so that you get out at the right time and then get back in at the exact right time to profit from big comback rallies.

 

Worst market since the 1930s

Still, it can be hard to sit still as stocks march lower. The coronavirus outbreak, which has brought global economies to a near standstill, has sent the major averages tumbling into bear market territory, putting an end to the record bull run that began in the aftermath of the financial crisis.

The pace at which stocks have dropped from their peak is also a record — the fastest in history. Last month, stocks were at all-time highs. Now, the Dow Jones Industrial Average and S&P 500 are trading 35% and 32% below their records, while the Nasdaq-100 is 28% below its high.

As the declines continue, new record lows are constantly set. The major averages just posted their worst week since the financial crisis. The Dow is tracking for its worst month since 1931, the S&P since 1940. U.S. West Texas Intermediate crude is pacing for its worst month ever.

And yet, in the midst of all the selling, there have been some good days mixed in, too. The Dow’s 5 worst single-day point drops have all been this month, but so have the index’s four best days, all of which saw a gain of more than 1,000 points. A similar pattern has played out for the S&P. This month the index has seen its four worst point drops in history, as well as its five largest point gains. As the indices have moved higher over time larger point gains and losses amount to smaller percentage moves, of course, but the numbers are still notable.

At some point, one of those big rallies will mark the turn in this market. If you sell now, you will be left on the sidelines, hurting your long-term returns, the data shows.

One of the factors spooking investors is that, unlike prior periods of economic turmoil such as the financial crisis, this sell-off is not man-made. The Federal Reserve cannot stop the virus.

 

‘Incredibly bad time’ to sell

As more and more Street strategists and high-profile investors say a recession is largely unavoidable at this point, investors are offloading equities, preferring not to wait around for what could be additional losses.

But this strategy is precisely the opposite of what many say to do during times of volatility.

“It’s an incredibly bad time for people who don’t have to sell to be selling, because they are selling into an avalanche,” said David Bahnsen, chief investment officer at The Bahnsen Group, which oversees $2.25 billion.

Experts typically advise retail investors to avoid the impulse to time the market, which can be difficult even for professional traders.

Bank of America said that trading over a one-day period is “only marginally better than a coin-flip,” while noting that “the probability of losing money plummets to 0% over a 20-year time horizon."

Still, retail investors like to try their hand, which can not only lock in losses, but also put them at risk of missing the best days.

Goldman Sachs found that “households,” which they define as retail investors as well as some professionals such as hedge funds, are the only subset of shareholders that have “sold equities during each bear market since 1950.”

This is essentially the opposite of the “buy low, sell high” goal of investing. Time and again, bear markets have proven to be good buying opportunities — it can just take several years for the gains to be realized.

For those who can shoulder the added risk, it pays to stay invested.

“Investors with longer-term investment horizons should remain invested in stocks,” Goldman said, while Bank of America noted that “time is money for equities.” The firm added that “for equity investors, the best recipe for loss avoidance is time: as time horizons lengthen, the probability of losing money in stocks has decreased.”

 

What to do now

Wall Street firms are cutting their growth forecasts for the first and second quarter of 2020, warning about the impact on GDP as the coronavirus-related slowdown rages on. But at this point many still see a recovery in the second half of the year.

And in the meantime, there are a number of ways investors can take advantage of the sell-off in equities, even as the long-term impact of the virus remains unknown.“

Given the expected pressure on company profits, the spotlight is now on balance sheets,” Citi equity strategist Robert Buckland said in a note to clients Friday. “This is especially relevant for income investors who are tempted by high yielding stocks but want to avoid dividend cutters,” he added. The firm is overweight the typically defensive utilities sector. 

Bernstein also said to focus on companies with quality balance sheets and sustainable dividend yields, as well as U.S.-based companies that offer sustained growth potential. The firm highlighted names like Nike and Microsoft, which it believes checks these three boxes.

Given the ongoing uncertainty, Credit Suisse’s HOLT team recommends investors stick with stocks that are on “firm financial footing and capable of weathering a potential recession.” These “safe(r) havens,” as the firm calls them, include companies like Lockheed Martin, Copart and Generac. 

Meanwhile, BTIG put together a list of “stocks for the storm,” such as Chipotle Mexican Grill, Thermo Fisher Scientific and REIT name Equity Residential. In a similar vein, JPMorgan identified a basket of “social distancing” stocks that will benefit from the stay-at-home trend. Names include Peloton, Netflixand Activision Blizzard.

But for long-term investors with faith in the American economy, the best strategy is to stay long a market index fund, the data shows.

- CNBC’s Michael Bloom, Nate Rattner and John Schoen contributed reporting.