Sometimes you just have to be patient
Maureen and I were fortunate enough to be invited to a New Jersey Devils hockey game as they took on the New York Islanders. Our good friends Jeanne and John have excellent seats at the Prudential Center, and we were excited to see this fast-paced game in person. Hockey games are divided into three 20 minute periods.
While we enjoyed the early action, the game remained score-less at the end of the first period. We were in our seats the entire 20 minutes and were able to see tremendous athleticism by both teams.
A few minutes into a second period, I decided to visit the concession stand to purchase some snacks and drinks for all of us. While I was away, both teams scored goals in a three-minute span. I only got to see the goals on video replay on the large Jumbo-tron.
As luck would have it, I decided to use the restroom during the third session and the New Jersey Devils scored again. That was it for the scoring. The Devils won the game 2-1. So, while I was only gone from my seat for maybe 10 minutes of the 60 minutes of action, I did not get to enjoy the most exciting and thrilling part of hockey – the scoring of a goal.
Most investors do not understand that this is how the returns of the stock markets have been achieved by the successful investors. Successful investors have generated the long-term positive returns of the stock market by being invested for the entire time. Sitting in the seat for all 60 minutes of the game.
Most investors do not achieve the actual returns because (just like me at the hockey game) they occasionally go in and out of the markets either by trying to time the market or due to the fear of perceived imminent market declines they exit the market.
Investors would do well to learn from the hunters and fishermen who know the importance of “being there” and using patient persistence, so they are there when opportunity knocks.
Charles Ellis, on investment philosophy
A review of the US stock market returns shows that the US stock market historically has returned about 10% per year. Over 92-year period from 1927 through 2018, the S&P 500 index returned 10.1%. However, if you were to remove the returns of the best 92 months over that long-term period, what would you guess the yearly return would be?
Mind you, these aren’t the best monthly returns of the 92 years, just the best 92 months over this long period. The answer: virtually zero.
To visualize this, think about me at the hockey game. I sat through 52 of the 60-minute game and did not get rewarded with the excitement of seeing the goal scored live. This is how most investors end up not achieving anywhere near the long-term performance of stock markets.
The ability to time when these strong market monthly returns will occur is about as attainable as being able to determine when a hockey player will be able to score a goal. Even for the best of goal scorers such as Wayne Gretzky, you would not be able determine when in the game that he would score a goal, but just that it would be highly likely that he would score some time during the game.
You do not have to go back to far in time to see this in action. The S&P 500 index gained 4.96% on December 26, 2018 which was the best one day performance for the index since March 2009.
To highlight this interesting fact about stock market returns, the results are similar for international stock markets such as companies in the developed markets of Europe and Asia as well as for companies in the emerging markets such as China and India.
When you have so-called investment gurus and TV analysts giving their predictions of what’s the market going to do tomorrow or this year, remember it is like asking the hockey analyst when the team will score a goal. It’s not a relevant question because it cannot be answered.
Have the patience and discipline to stay with a well-diversified portfolio designed to capture the long-term returns in order to have a successful investment experience. We can help in that regard.
Hope you have a great week!
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