Kingsmill's Investment Miscellanea - Friday November 17th, 2023

November 17, 2023 | Joshua Kingsmill


One of the aspects of investing that we always grapple with, is the “timing of investments”. Part of our job is to make sure that the objectives of the clients align with the outcomes historically available in the market.


For instance, if a client has a requirement for a certain amount of money to be deposited into their banking account for general expenses on a monthly or quarterly basis, their investment mix needs to reflect this. While the likelihood of favorable outcomes for markets gets better with time, as we have seen, the markets are known for their unpredictability over shorter time periods.


While market gyrations always seem to emerge randomly, corrections are an inherent part of investing in stocks. Since 1928, the S&P 500 has experienced, on average, roughly 3 corrections of at least 5% per year, one of at least 10% per year, and every 3–4 years a bear market where prices fall more than 20%. Despite this recurring volatility, however, the S&P 500 has generated positive annual total returns roughly 75% of the time over the past 95 years.


One of the most powerful tools investors have is their time horizon. Extending the investment time-frame greatly increases the probability of realizing more favorable outcomes. For investors, a key principle should be to think in terms of probabilities. The charts below illustrate the prospect of earning positive returns and annualized returns greater than 5%, depending on the length of time invested. The curve is particularly steep at the start. What this means is that if you are planning on buying a car in 8 months: let us know well in advance. You don’t want to be fully invested knowing you have a certain withdrawal coming up shortly. Or at least have the conversation about the implications of waiting, setting money aside, what those probabilities are, etc.


The probability of earning a positive return on any given trading day or week is no better than a coin flip. As the holding period increases, the likelihood of a constructive outcome rises significantly to about 75% for one-year rolling time periods, roughly 85% for three-year rolling periods, 90% for five-year rolling periods, and approaching 100% for rolling periods longer than five years:



So when I lived in the UK, I became a Formula 1 aficionado. It's pretty neat that they are racing in Montreal, Miami, and now Las Vegas in North America. This is as good as it gets as a no-brainer lock: Max Verstappen is certain to claim this Formula 1 race in Vegas.


Have a great weekend!