InvestEd

The venerable news magazine the Economist puts out their annual predictions in a publication called “The World Ahead” in late November where they forecast trends for the upcoming year.

It can be fun revisiting predictions after the passage of time, and it is worth noting that in November 2019 there was no mention of the coming COVID-19 pandemic which would grip the world, disrupting almost every aspect of modern life and invalidating many of the magazine’s forecasts. In November 2021 not a word was said about Russia’s invasion of Ukraine in February 2022 which launched Europe into its bloodiest conflict since the second world war. More recently, few anticipated escalating tensions between the United States and Iran that disrupted global energy supplies and shipping through the Strait of Hormuz.

As embarrassing as predictions can be in hindsight, most people have a basic understanding that the future is unknowable. The essential unknowability about the future makes it hard to justify the cottage industry of market prognosticators and talking heads focused on short-term forecasts that invariably miss the mark. Because short-term events are difficult to forecast, reacting to headlines and market noise can make investing more difficult than it needs to be.

Long-term thinking: An investing superpower

While markets can feel unpredictable over short periods, history shows that investors who stay focused on the long term have generally improved their chances of success. One way to illustrate this is to look at rolling returns over different time periods. From 1980 to 2025, the S&P 500 Index posted a positive return on any given day only slightly more than half the time – about 52%, or barely better than a coin toss. However, if we examine rolling period returns over longer time frames, a dramatically different story emerges.

Source: Bloomberg LP. Rolling return periods. 1980-2025.

Over longer periods, investors experienced many events that created fear and uncertainty: the Black Monday crash of 1987, the dot-com bubble bursting in the early-2000s, the global financial crisis in 2008, and the COVID-19 market decline in 2020. At the time, each event felt significant. Yet investors who remained focused on their long-term plan and resisted reacting to short-term noise were ultimately rewarded.

This highlights an important point: short-term market movements can feel random and unpredictable, but over the course of time, the market’s long-term growth trend has historically become much clearer.

Short-term thinking has become more common

While an investor’s chances of success increase dramatically if they are willing to mute short-term market noise and focus on the longer-term, this is not the way the average investor behaves today. The following chart shows that there has been a steady decline in common stock holding periods in the United States since the 1960s peak until the 2020s when the average holding period for a stock is just six months.1

Source: World Economic Forum. NYSE turnover data.

There are a number of factors contributing to shorter holding periods. Advances in trading technology have reduced transaction costs and increased trading speeds making it easier to buy and sell stocks frequently and low-cost trading platforms like Robinhood have become online casinos by gamifying investing for do-it-yourself investors. There has also been a proliferation of short-term strategies that some investors believe can achieve better returns and investors are bombarded with a steady stream of short-term market commentary. Whatever the reasons, the benefits of long-term investing are clear.

Time helps reduce uncertainty

Another benefit of long-term investing is that it can reduce the impact of short-term volatility on outcomes. Historically, there has been a wide range between the best and worst one-year returns in the market. But as investment periods lengthen, that range narrows significantly.

The chart below highlights two important points. First, while there can be a large difference between the highest and lowest returns over shorter periods, that difference declines meaningfully as investment horizons lengthen. Second, while negative returns are possible over shorter periods, the magnitude of those negative returns has historically decreased over longer holding periods, and the lowest return is positive over rolling 20-year periods.

Source: Bloomberg LP. Annualized for periods greater than one year. 1980-2025.

For investors, this reinforces the value of patience and maintaining a long-term perspective during periods of uncertainty.

What this means for investors

· Short-term market movements are unpredictable.

· Headlines and forecasts can become distractions.

· Longer holding periods have historically improved the probability of positive outcomes.

· Patience and discipline can play an important role in long-term investing success.

Invest-ED

Successful investing is rarely about predicting the next headline or short-term market move. It’s about having a plan, staying focused on long-term goals and giving investments time to work. While short-term uncertainty is unavoidable, history suggests that time has been one of the greatest advantages long-term investors possess.

References

1. https://finimize.com/content/holding-periods-stocks-have-been-shrinking-so-it-may-pay-take-long-view