Investors’ Odds Improve if They Give the Market Time

In a nutshell, the data is holding up better than the sentiment. Whether its
the numbers on rail and boat shipments, tax revenues, durable goods orders and
shipments or auto sales, theres plenty in the U.S. economy that points to
continued growth albeit slower growth than wed like, of course. Last weeks
update on Q2 GDP was an improvement as well. Ive seen some estimates that
third-quarter GDP is going to come in with better than 2% growth. Dont get me
wrong 2% growth is not going to produce lots of new jobs, nor is it going to
magically repair the housing market. But it isnt a recession, either. Whats
holding us back is the fact that consumer, investor and business sentiment
stinks. So does voter sentiment, for that matter. For the past week or so its
been Europes bailout plans that have been front-and-center. A month or so ago it
was the debt-ceiling debate here at home. Tomorrow? Im confident there are
plenty of issues that will stall the market, or cause investors to fret, or
spark more screaming from politicians on all sides of the aisle, none of whom
really seems to have the nations interests at heart, or at least as high on
their list as their own election, or re-election prospects. But as we close out
the quarter, its important to remind myself that Im not investing in sentiment,
Im investing in companies. Im sure that as you watch the markets moves on
Monday, the Dow Jones went from a loss of 90 points to a gain of 60 points, back
to a loss of 90 points, up to a slight gain and finished with a nosedive of 260
points youve got to wonder whether having a long-term view makes sense when the
day-to-day is so volatile. In fact, some recent research conducted by Jeff
DeMaso, one of my analysts, shows the odds of making money in the stock market
severely outweigh the odds that you wont. But dont try to day trade. Jeff looked
at every days stock market return from 1927 through the end of 2010. He found
that the chance that youll lose money investing for one day is 46% not quite
50/50. Invest for one week and your odds of losing money decline to just 44%.
Invest for 12 months and the odds of a loss drop to 33%, and if you invest over
three years, the possibility that you wont make money goes to 24%. That means
theres a 76% chance you will make money. Take a 10-year perspective and, well,
theres an 87% chance youll make money. Actually, the chances for making money
are higher than these calculations because Jeff only looked at index returns and
didnt factor in dividends. In any case, given the fact that the odds are well on
our side of the fence, Ill leave the day trading and attempts at timing the
market to the hedge funds and others who think theyve got a magic formula but
have so far proved the only formula they have is for minting fees for the
partners while their investors are left holding the bag.