As an avid football fan…
There was only one topic I could write about this week.
The final on Sunday had me gripped.
And since I am not particularly good at ‘switching off’,
It also got me thinking about the markets…
In 55 years, the last time we saw the England men’s team in a final, we’ve seen:
- nine US bear markets;
- ten UK Prime Ministers; and
- both multi-century highs and lows for US 10-year government bond yields.
Back to parallels between sport and the markets...here are my 3 key takeaways for investors.
1. Greater returns over the long term
The nail-biting penalty shootout on Sunday got me thinking about returns.
It seems that (understandably) nerves played a role for all involved.
Only five out of ten penalties were converted in total, well short of the long-term average of 75%.
Looking at the history of the S&P 500 index since 1927, we find that the index delivered positive monthly returns only 60% of the time.
This can create real disappointment for unlucky investors in the remaining 40% of negative months, but thankfully there are many ways to improve your market odds.
Firstly, unlike a penalty, markets give everyone the opportunity to have as many shots as you like before you become successful.
Rather than looking at monthly returns, the evidence shows the odds of success improve for investors who hold their investments for the long term.
Looking at yearly, the odds of a positive return improve to 67%, and extending further to three years improves the odds to an impressive 79%.
Investors have a better shot at making money over this time frame than the average penalty taker has of scoring.
2. Greater pay off over the long term
Another key advantage for long-term investors is that, as well as the odds of winning being in your favour…
(if you opt for a globally diversified portfolio invested in the world’s greatest companies),
The payoff when you win is larger too.
The average yearly positive price return for the S&P 500 since 1927 was 18.5%, greater than the average negative return of -14.2%.
That’s before you include dividends.
This is quite different from penalty shootouts.
Misses live long in the memory of players and fans alike (think Gareth Southgate in the crucial semi-final match against Germany in 1996), and there is no opportunity to try again.
3. Behaviour is everything
The return of fans also got me thinking about home advantage, an interesting behavioural phenomenon that benefitted both England and Italy throughout the tournament.
As we’ve written before, behavioural factors (particularly home bias) also have an important impact on investor returns.
So despite the result, (let’s not mention Scotland) the tournament seems to have been just what we all needed after the past 18 months.
And since the final ended in the early hours for us over in the gulf, I was grateful for the company decision to begin our working day at 10am the following day.
Culture at its best.
As ever, I welcome your comments and my team and I are on hand if you’d like an initial chat about reaching your ideal future.