≈ Look to the Horizon ≈
When I was a new trader, I rarely looked to the horizon. Instead, my gaze was set a few steps in front of me. My trade duration was minutes to days, not weeks to months. In my youth, I cared little for the tide. It was all about surfing each wave.
As I got older, I eventually realized I was playing a lower odds game. I stumbled upon an earlier version of the Chart of the Day below and discovered that the easiest way to increase my probability of profit was to lengthen my hold time. Investments, which first occupied a tiny sliver of my portfolio, grew to account for the lion’s share. I began romancing ETFs while forsaking individual stocks. Buying turned to accumulating. Dollar-cost averaging became my new friend.
What started as a game with 50/50 odds has morphed into a plan with the probability of success running toward 100%.
The accompanying chart shows the positive correlation between making money in U.S. stocks and the hold time. Simply put, the longer you own the market (via SPY or some equivalent), the higher your odds of scoring a profit.
Historically there has never been a 20-year time period where you’ve lost money. Even at five years, your odds stand at 80%.
Chart of the Day
Today’s chart is perhaps the best single graphic I know of to convince someone of the power of holding for the long run.
Video of the day
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