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Buy And Hold A Stock For 12 Months, What Are The Chances You Make Money?

|Includes: SPDR S&P 500 Trust ETF (SPY)

If you buy and hold 100 shares of a random stock for the next 12 months, what are the chances you will have made money after 1 year?

First of all, if you're reading this, thanks for stopping by my blog. This is my first blog post and I thought it would be useful to say a little bit about what I want to do with this blog, my own background, the topics I'm going to write about in the future, etc.

To begin with, this blog is all about investments. The whole point of this blog is to help you, the reader, earn higher returns on your investments, while hopefully taking on less risk. To do that I'm going to write about a variety of different kinds of investments, and then in many cases talk about some statistical analysis I have done with those investments, and what the analysis can tell us.

This type of statistical analysis may seem … well frankly, pretty technical, and it is. But it's also extremely useful. Statistical analysis can't guarantee that you will be able to pick out which stocks will double next year - nothing can - but it can help you to earn better returns and take less risk. Hedge funds, high speed traders, and others like them have been doing this kind of analysis for more than a decade, but individual investors rarely get any information on the tools these types of institutional investors use. I'm going to fix that with this blog.

The question that first inspired this blog is what I started this post with… what are the chances that a given stock goes up or down in some year? Even finding the answer to a very simple question like this one is very difficult using the traditional financial press. But, this question and many other questions like it are critical to most investors, especially individual investors. Are there certain characteristics that alter those chances, and if so, how much do they alter them? Are value stocks less likely to go down then growth stocks? How about dividend paying stocks or international stocks? You get the picture. This is what my blog is all about - I answer questions like these for you using data analysis.

In this case, the chances that you make money with a random stock are about 54% in the average year over the last 2 decades. 54% of stocks go up, 46% go down. As a basket of stocks of course, the S&P 500 (NYSEARCA:SPY) or the Dow go up on average over time. But if you're trying to pick individual stocks, it's critical to understand how different stock specific factors like PE, Market Cap, Book-to-Market, etc. work together. The stocks that go up, go up by an average of 23%, while the stocks that go down, fall by an average of 17%. These numbers are heavily weighted by the extreme cases though - Salesforce.com (NYSE:CRM) doubles and makes up for a lot of stocks like Disney (NYSE:DIS) that rise 5%. HP (NYSE:HPQ) falls 60% and drags down the average of many firms like American Express (NYSE:AXP) that fell a little bit.

I'm not just going to write about the stock markets, or using statistical analytics to predict stock market movements. I'm also going to write about a variety of other types of investments including real estate investments from REITS to NNN leases. I'll also write about all types of bonds corporate bonds, variable rate bonds, junk bonds, municipal bonds, and zeros. I'll periodically be writing about various types of derivatives including options, interest rate and FX swaps, and commodities futures. Finally, I will sometimes write about the statistical tools I use to do my analysis of investments.

For those who are interested, I can do this kind of statistical analysis and write authoritatively about it because of my work background and my educational training. I have a PhD in Finance, a Masters in Economics, and a B.S. in Industrial Engineering. All three of my degrees have largely been focused on data analysis, and that's what most of my work experience has dealt with. I'm a professor at a major US university now where I teach classes on data analysis and do research on the financial markets, but before that I worked for a major Wall Street bank as a bond trader, and before that I worked for a hedge fund as a quant developing investment strategies. (The term quant refers to someone using data and statistical analysis to make investment decisions - essentially a data scientist for investments.)

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.