#209: 83% Chance You'll Profit

Dec 11, 2023

It is a widely-known fact that the S&P 500 index returns an average of ~9% per year. Warren Buffet even had made the famous bet that investing in the S&P 500 index would "outperform the best and brightest minds on Wall Street" (aka hedge funds)
95% of finance professionals can’t “beat the market” — even then, I personally look around and I don’t see a lot of my friends simply buying the index fund, every December sending me that “thought I could beat the market” text 😔
It’s the end of the year, and if I could suggest one new year’s resolution to our wise apes (kudos if you’re already doing this with a portion of your portfolio!), it’d be to buy SPY and hold for a year (ft. simple Python models)

What a year can do

From 1993 to 2023 (for as long as SPY 0.00%↑ the S&P 500 index ETF has been available to retail investors), if one were to buy the ETF on any given day and sell after a year:

Including dividends, on average, that would’ve yielded +10.83% return
Based on all daily close price data from 1993 till present, the 365-day holding period would have yielded a positive return (accounting for dividends as well) more than 79% of the time
- More than 50% of the time, the return would’ve been +13.05% or higher (i.e. median)

Excluding the ‘07-’08 Global Financial Crisis

Now, if we were to exclude the Global Financial Crisis (that is, assuming that the upcoming year is far from one analogous to ‘07-’08), it gets even better:

Including dividends, on average, that would’ve yielded +12.75% return
The 365-day holding period would have yielded a positive return (accounting for dividends as well) more than 83% of the time
- More than 50% of the time, the return would’ve been +13.90% or higher (i.e. median)

👉 All these point to the idea that, if one were to simply buy SPY 0.00%↑ and sell after a year, it would not be a far-fetched, low-chance bet. This is the reason why it is not a bad idea to simply tie a significant portion of one’s portfolio to the index, while apportioning the rest of active trading in an attempt to beat the market. Beating the market does not necessarily have to be using 100% of the portfolio for actively trading.