Can you time the market?

The conventional wisdom is no, you can't. But that's not the whole story.

Writing in The Wall Street Journal, Brett Arrends takes aim at money managers who encourage you to stay in the market when things are bad: most gains come on just a few days, they argue, and you don't want to miss those.

True enough, but most losses also come on a few days, and you don't hear that side of it.

The best long-term study relating to this topic was conducted a few years ago by Javier Estrada, a finance professor at the IESE Business School at the University of Navarra in Spain. To find out how important those few "big days" are, he looked at nearly a century's worth of day-to-day moves on Wall Street and 14 other stock markets around the world, from England to Japan to Australia.

Yes, he found that if you missed the 10 best days you missed out on a lot of the gains. But he also found that if you managed to be out of the market on the 10 worst days, your profits went through the roof.

Over an investing period of about 40 years, he calculated, missing the 10 best days would have cost you about half your capital gains. But successfully avoiding the 10 worst days would have had an even bigger positive impact on your portfolio. Someone who avoided the 10 biggest slumps would have ended up with two and a half times the capital gains of someone who simply stayed in all the time.

What does this mean for you? It offers yet another argument in favor of investing for dividends, not simply for capital gains, Arends says.

Most of these "market timing" studies, including Mr. Estrada's, focus purely on stock market price movements. They ignore dividends. (The reason is technical. Reliable total return data is hard to find once you go back more than a few decades. And calculating the interaction between daily price movements and reinvested dividends is a heroic undertaking.) But the omission of dividends matters for shareholders. That's because dividends are likely to make up a significant bulk of your long-term returns.

One reliable way to time the market is through dollar cost averaging -- putting the same amount of dollars into the market each month. This means you're buying low and selling high.