How Often Stocks Earn 7%+, "Tiny" Gains → Big Wins, A Price Negotiation Trick, and More

"In 2010, Dave Brailsford faced a tough job.

No British cyclist had ever won the Tour de France, but as the new General Manager and Performance Director for Team Sky (Great Britain’s professional cycling team), Brailsford was asked to change that.

His approach was simple.

Brailsford believed in a concept that he referred to as the ‘aggregation of marginal gains.’ He explained it as ‘the 1 percent margin for improvement in everything you do.’ His belief was that if you improved every area related to cycling by just 1 percent, then those small gains would add up to remarkable improvement.

They started by optimizing the things you might expect: the nutrition of riders, their weekly training program, the ergonomics of the bike seat, and the weight of the tires.

But Brailsford and his team didn’t stop there. They searched for 1 percent improvements in tiny areas that were overlooked by almost everyone else: discovering the pillow that offered the best sleep and taking it with them to hotels, testing for the most effective type of massage gel, and teaching riders the best way to wash their hands to avoid infection. They searched for 1 percent improvements everywhere.

Brailsford believed that if they could successfully execute this strategy, then Team Sky would be in a position to win the Tour de France in five years time.

He was wrong. They won it in three years.

In 2012, Team Sky rider Sir Bradley Wiggins became the first British cyclist to win the Tour de France. That same year, Brailsford coached the British cycling team at the 2012 Olympic Games and dominated the competition by winning 70 percent of the gold medals available.

In 2013, Team Sky repeated their feat by winning the Tour de France again, this time with rider Chris Froome. Many have referred to the British cycling feats in the Olympics and the Tour de France over the past 10 years as the most successful run in modern cycling history."

“So there’s a decently wide range around the averages, even over longer time frames.

It is worth noting that there were a number of returns that were relatively close to the long-term averages. So I looked at the percentage of time the stock market returned more than 7%, 8% and 9% as well:

Those win rates are obviously higher but you can see high returns are promised to no one.

The odds have been in your favor historically but 24% of the time the U.S. stock market returned less than 7% per year over 10 years.

This is one of the nerve-wracking and frustrating aspects of investing in risk assets. Most of the time things are going to work out for you as a long-term investor. But some of the time you probably aren’t going to be thrilled with the results.

So goes the nature of risk in the markets.

This is one of the reasons I’m such a big proponent of dollar cost averaging. It’s a way to diversify your entry points to increase your odds of success.”

“While we can’t specifically quantify how much investors traded in equity funds and ETFs, we can use the volatility of those funds’ flows to proxy trading activity. Once we classify funds on that basis and estimate their dollar- and time-weighted returns, we find that outcomes were substantially worse for investors in the funds that had the most-volatile flows than for investors in funds with stable flows. This relationship held even when we controlled for multiple variables, including vehicle type and geographic focus.

This seems to only further reinforce the case to keep trading to a minimum, even if the vehicle type affords one the ability to transact often, as is the case with ETFs. Indeed, we found that the opportunity costs of trading were larger among ETFs than open-end funds, and those costs can swamp whatever fee or other advantages such vehicles might enjoy versus comparable open-end funds.”

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