Even if you’re not an avid tennis fan, you probably recognize the name Roger Federer. His tennis career spanned 25 years. During that time, he won 103 singles titles, and the Association of Tennis Professionals ranked him the number one player in the world for 310 weeks of that career. Federer won over $130 million in prize money over his career, not counting endorsements.
You might ask the question, “given that Federer is that skilled, does anyone ever score a point against him?” It’s a good question and the answer may surprise you. Over his professional career, he scored just over half of individual points, 54 percent to be precise. On a single volley, he loses 46 percent of the time. That’s hard to imagine, given his incredible record. But consider the competition he’s playing against. There’s no weekend tennis buffs on the court at Wimbledon. Only the best of the best gets there.
In tennis, multiple games become a set and multiple sets turn into a match. While Federer only wins 54 percent of the points, he wins 76 percent of the sets he plays. Extending that out a bit more, Federer wins 82 percent of the matches! The longer the measurement period, the better Federer does.
The stock market is like that as well. The longer the measurement period, the better the performance. If you invest with a time horizon of one day -similar to a single point in tennis- you have a 54 percent chance of a gain. If you stay invested for three months, your odds of a gain increase to 72 percent. After a full year, your likelihood of winning is 82 percent. Remarkably, these are similar odds to Federer’s tennis record over time!
I don’t follow tennis so I can’t fully explain how a guy who only wins 54 percent of his points goes on to win 82 percent of his matches. But I suspect Federer is extremely focused on the game and that he retains that focus throughout the match. He doesn’t get distracted by the fact he just lost three points in a row. Or by fans that may be jeering at him, or other forms of noise in the arena. He doesn’t try to adjust his style in the middle of the match.
In a similar sense, investing is like that. The successful investor doesn’t lose focus after suffering a down week or a down quarter, or even an occasional down year. Such periods just come with the territory. They don’t adjust their style based on the latest “breaking news” story. (aren’t they all “breaking news” stories nowadays!) Rather, they focus on the long term and carry on with a well thought out plan and goals. It’s the surest way to be a long-term winner in the investing game.
