Roger Federer delivered an excellent commencement address at Dartmouth’s graduation recently.
This part floored me:
In tennis, perfection is impossible… In the 1,526 singles matches I played in my career, I won almost 80% of those matches… Now, I have a question for all of you… what percentage of the POINTS do you think I won in those matches?
Only 54%.
In other words, even top-ranked tennis players win barely more than half of the points they play.
When you lose every second point, on average, you learn not to dwell on every shot.
You teach yourself to think: OK, I double-faulted. It’s only a point.
OK, I came to the net and I got passed again. It’s only a point.
Federer won 80% of his matches but only 54% of the points in those matches.
Crazy, right?!
One of the most dominant tennis players of all-time won most of his matches but not always in dominating fashion. It was more like slight advantages over the short-run that compounded through consistency over the long-run.
Of course, when I heard this part of the speech, my finance brain immediately went to the stock market.1
Federer’s win and point percentage are basically the same as those of the stock market!
I’m always banging the drum about the fact that the stock market is essentially a toss-up in the short-term but has a wonderful win rate in the long-term.
On a daily basis over the past 100 years or so, the S&P 500 has been flat or up roughly 54% of the time, just like Federer:
Shockingly, the average down day is a little worse than the average up day is good.
Despite an average daily return of just three basis points, the stock market’s compounding over longer time horizons has
