YOUR INVESTING ODDS

All investors should be long-term investors and your long-term odds when investing in the stock market are exceptional.  Look at how the S&P 500 and the Nasdaq and the Nasdaq-100 have performed over long periods of time.  The results are terrific and amazingly consistent.

Investing odds are very different than gambling odds.  The odds are heavily tilted in favor of the casino when you gamble.  The house does always win.  You can get lucky in the short-term but if you play long enough, the house will win.

It is the exact opposite with stock market investing. The long-term odds are totally in the investors favor.  But short-term results will be highly volatile and erratic.  Even though you can expect long-term gains of 10% per year, bear markets periodically lead to losses of 30%, 40% and even 50% in short time frames.

Other than picking the best large cap index funds for your investments, the only thing left to do is to deal with inevitable bear market collapses.  Every six to seven years on average the stock market will drop by roughly 40% over a time period of roughly eleven months. 

All of the difficulties that investors face can be traced back to stock market meltdowns.  Your success as an investor will come down to how you deal with market crashes.

Some people avoid stocks altogether and end up generating terrible returns on their investments. 

Some people follow the industry advice of asset allocation and spread their investments across many different assets and asset classes (bonds, small cap stocks, international stocks, real estate, commodities, etc.).  The “asset allocators” end up getting only about 6.5% to 7.0% annual investment returns AND they still get crushed in bear market.

Some people put all their money in large cap index funds like the ones we recommend and simply follow the Buy & Hold approach.  They figure out a way to deal with watching their life savings get cut in half periodically knowing that the market will rebound eventually.  This approach works but we created an approach that gives the best of both worlds – high long-term gains with the best large cap index funds AND avoiding most of the pain and suffering of bear markets.

While it is not possible to perfectly avoid bear market crashes, you can tilt the odds in your favor to both increase your investment returns and avoid the pain and suffering of stock market collapses.

ROGER FEDERER

I came across this story about Roger Federer, the great tennis player, and his statistics mirror what we do to beat bear markets with our Market Signals investment system.

Roger Federer won 80% of his tennis matches over his long professional career.  When the tennis experts analyzed his winning matches, they found that he only won 54% of the points in those matches.  That was surprising to me.  I would have guessed that he won closer to 70% of the points in the matches that he won. 

Federer had a Hall of Fame tennis career by only winning slightly more points than his opponents.  He won just enough points to get a big edge over his opponents.

The stock market is similar.  When we look at how the S&P 500 does on a daily basis, the stats are similar to those of Roger Federer.  The stock market posts a daily gain only 52.4% of the time.  It posts a loss 46.4% of the time and it is flat 1.2% of the time. 

These unexciting daily results generate long term annual gains of roughly 8% per year (not including dividends).  This shows us that the daily ups and downs don’t matter much.  It is only the long-term trends that matter in investing.

Our Market Signals Investment System uses odds and probabilities to avoid the worst of bear market crashes.  It is not correct all the time, but it still beats the Buy & Hold approach by a wide margin. 

Like Roger Federer, we win the important points in the match.  By just being a little bit better than the market in the periodic meltdowns, we see results that are 50% better than the market over time. We don’t win every point, but we win the match. 

Do you want to be a Hall of Fame investor or a mediocre investor?

Stay Disciplined My Friends.

Phil

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Disclaimers The Beyond Buy & Hold newsletter is published and provided for informational and entertainment purposes only. We are not advising, and will not advise you personally, concerning the nature, potential, value, or suitability of any particular security, portfolio of securities, transaction, investment strategy or other matter. Beyond Buy & Hold recommends you consult a licensed or registered professional before making any investment decision.

Investing in the financial products discussed in the Newsletter involves risk. Trading in such securities can result in immediate and substantial losses of the capital invested. Past performance is not necessarily indicative of future results. Actual results will vary widely given a variety of factors such as experience, skill, risk mitigation practices, and market dynamics.