With casinos, the house always wins. Games have odds in favor of the house - not the gambler.
The stock market is often compared to a casino. So, it makes sense that, like casinos, people say that the house always wins. Or, in simpler terms, that the market is “rigged.”
It’s easy to believe that these days. An immense crash was followed by a historic recovery. That kind of volatility is terrifying, especially when people see their life savings evaporate. And, worst of all, some people sold at or near the bottom, locking in their losses with no near-term hope for a do-over.
But, like some casino games, a good investing strategy can increase the odds for success. For the stock market, the strategy is simple. Patience.
Let’s take a simple example. Using historical S&P 500 data going back to 1928, if you invested on any given day, the odds of your investment being higher one trading day later would be 52%. However, if you were patient and waited ten trading days, your odds of having a positive return would be 58%. Here’s how those odds increase over a range of increased holding periods:
So, one trading day already has odds above 50%, which already beats any casino game. However, if you hold on for a year, your odds of the index being higher rises to almost 70%!
It’s true that the payouts for winning aren’t as big as hitting the jackpot but those small wins add up. You can definitely double up with a decent probability - it just won’t happen overnight. Maybe that delayed gratification ruins the fun. Though, walking away with winnings might just be worth the wait.