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  • Writer's pictureRobert Baharian

Here's What Michael Jordan & The Stock Market Have in Common

Look at the air, look at the hang time, look at the flying motion.

The debate is an ongoing one. Michael Jordan or LeBron James - who is the greatest player that ever lived. For me, it’s Michael – hands down. Sure, I’m biased – I grew up in the 80’s. The shoes, the jersey, the shorts, the posters – I was obsessed with him. Watching highlights of MJ now gives me goosebumps each and every time. His skill, his talent, his style, his accuracy, his precision, that air time would not only have the supporters in the stands up on their feet, but also the game’s commentators yelling and screaming. Everyone was biased.

He was an absolute sniper with that ball in his hands. Leave him open for a split second, and he’ll put that thing away before you even had a chance to work out what had happened.

Michael leads the NBA All-Time Points table with an average of 30.12 points per game. Quite impressive. But MJ’s scores per game were no where near his average. I was able to get my hands on data from 868 of Michael's games (MJ played 1,071). I used the data to calculate how many times Jordan scored 30 points in a game. 35. The number is 35. Michael Jordan scored 30 points in a game only 35 times over his career. In other words, he scored his average number of points only 4.03% of the time. Don't believe me? Here's a chart I made. Each blue dot in the chat below represents one game, and the red horizontal line represents an average of 30 points. You can see the range of scores that are well below and well above his average. They're all over the place.

Source: Land of Basketball

The Australian stock market has delivered an average annual return of around 13.7% since 1980. But short-term results vary, and in any given period, stock returns can be positive, negative, or flat. When setting your expectations, it’s helpful to see the range of outcomes experienced by investors historically. For example, how often have the stock market’s annual returns actually aligned with its long-term average? I've crunched the numbers, so let's take a look.

The chart below shows calendar year returns for the Australian stock market (total return) since 1980. The horizontal line is the average, at 13.7% pa.

The Australian stock market has returned this amount only once in the last 41 years. In fact, it actually returned this exact amount in that year, 2003. In no other year has the stock market returned the average return. The only other times it came remotely close was in 2016 and 2017 were it returned 11.6% and 11.7% respectively. In all other years, the index’s return was outside of the average—often above or below by a wide margin—with no obvious pattern. For investors, the data highlight the importance of looking beyond average returns and being aware of the range of potential outcomes.

Despite the year-to-year volatility, investors can potentially increase their chances of having a positive outcome by maintaining a long-term focus. The historical frequency of positive returns over rolling periods of 1, 5, and 10 years in the Australian market are as follows:

1-Year Periods: 77.5% were positive

5-Year Periods: 95.6% were positive

10-Year Periods: 100% were positive

The data show that, while positive performance is never assured, investors’ odds improve over longer time horizons.

While some investors might find it easy to stay the course in years with above average returns, periods of disappointing results may test an investor’s faith in equity markets. Being aware of the range of potential outcomes can help investors remain disciplined, which in the long term can increase the odds of a successful investment experience. What can help investors endure the ups and downs? While there is no silver bullet, understanding how markets work and having a trusted process are good starting points. An asset allocation that aligns with personal risk tolerances and investment goals is also invaluable. By thoughtfully considering these and other issues, investors may be better prepared to stay focused on their long-term goals during different market environments.

As you wouldn’t bench Michael when he’s scoring 15 points per game, investors shouldn’t be benching their investment strategy when returns are looking below average. If you’re not playing the game, you’re not scoring the points.

There’s Michael Jordan and then there is the rest of us. — Magic Johnson

Thanks for the memories, Michael.

My colleague Matt Rigby and I talk more about this in last week's The Wide Lens podcast. I've shared the exact chapter where we discuss this below.

You can also listen to the podcast on Spotify or wherever else you listen to your podcasts.


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