Sunday, 8 March, 2009

Probability of Success in Investment Decisions

Probability of Success in Investment Decisions

Here's one from Mr. Andrew Mickey ( Worth sharing!

Why is Warren Buffett so successful?

I think his patience is his greatest key to success. He has waited out recessions of all lengths, market crashes, and international crises. When he goes in, he goes in for five years or more. And that ability is what has played a big role in making him a truly successful investor.

You see, long-term investors have the greatest odds of success. In his classic, More Than You Know: Finding Financial Wisdom in Unconventional Places, Michael Mauboussin details how long-term investing is an essential part of being a successful investor. Mauboussin, the Chief Investment Officer of Legg Mason, looks at investment success from a purely mathematical perspective.

He focuses on the probability of success relative to time. As you might expect, the longer someone holds a stock, the greater his odds of success.

For instance, the odds of coming out ahead on a trade with a holding period of one hour is about 50/50 (that's before commissions too). The odds of a one month holding being profitable is only slight better at 56%. After a year odds increase 72.6%. After ten years, the probability of success soars to 99.9%.

Buffett, as a true long-term investor, has got probability on his side. And that's one of the first steps to being successful in anything.



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