The Big Money

“I think it was a long step forward in my trading education when I realized at last that when old Mr. Partridge kept on telling the other customers, “Well, you know this is a bull market!” he really meant to tell them that the big money was not in the individual fluctuations but in the main movements – that is, not in reading the tape but in sizing up the entire market and its trend.

And right here let me say one thing: After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this: It never was my thinking that made the big money for me. It always was my sitting. Got that? My sitting tight! “

     – Jesse Livermore, Reminiscences of a Stock Operator

“Reminiscences of a Stock Operator” is widely regarded as one of the best trading books of all time. There’s an endless supply of wisdom within its pages, but the most important lesson for me can be found in the paragraphs above which uncover the main character’s realization that patience (“my sitting”) and time (“big money…in the main movements”) are the most valuable assets a trader can have.

Patience and time.

Think about that for a second before you go and purchase another monitor or newfangled software to help with your trading results. There is a diminishing marginal utility to more information and speed, and it starts much earlier than you think. I haven’t seen a study on it yet, but I’d venture to guess that there’s an inverse correlation between the number of monitors a money manager stares at during the trading day and his/her returns.

Big Money1

But patience and time are traits associated with investing, not trading, you say. Trading is supposed to be non-stop action and instant results. Indeed, and it is that perception that has been so damaging to so many who consider themselves “investors” but are really operating like “traders.” And without any consistent strategy or process to speak of, they are neither investors nor traders but simply gamblers.

With the advent of the internet and increasingly lower trading costs, the average holding period for investors is now measured not in years but in months. It has never been easier for investors to move around their portfolios at a moment’s notice on a whim; at the same time, it has never been easier for investors to destroy their long-term returns.

Big Money2

Source: LPL Financial, NYSE

Let’s have a look at why this is the case. The rolling total returns on the S&P 500 tell an important story: time is the best friend an investor or trader can have. On any single trading day, the odds of making money being long the equity market is only a little better than a coin flip, at 53%. If you move your time horizon out to a month, your odds of achieving a positive return improve to 62%. At one year, you have a positive expectancy 73% of the time. Extend your horizon to 10 years and your return would have been positive 93% of time. Anything longer than 20-years and we’ve never seen a period of negative returns.

Big Money4

The message from this chart is clear. Jumping in and out of the market at very short-term intervals is challenging and the odds of outperforming strategies employed for longer periods of time are stacked against you. If you want to increase your chances of earning a positive return, you need to extend your time horizon. If you cannot extend your time horizon past a few months, then you probably shouldn’t be holding risky assets at all.

While this analysis examines a passive buy-and-hold of the S&P 500, the same is true for more active strategies, whether they focus on value, momentum, or some other factor. The common thread is that, on average, they need time to work and the longer your time horizon, the more likely you are to achieve a positive return.

As a society, we’ve become more and more focused on the short-term and technology is a powerful force behind this trend. We all want immediate gratification and we don’t have the patience or time to wait for anything. But this precisely why, now more than ever, those who do possess the emotional fortitude to stick with a strategy and investment plan for years will outperform most investors.

This writing is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction, or as an offer to provide advisory or other services by Pension Partners, LLC in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Pension Partners, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.


Charlie Bilello is the Director of Research at Pension Partners, LLC, an investment advisor that manages mutual funds and separate accounts.  He is the co-author of two award-winning research papers on Intermarket Analysis. Mr. Bilello is responsible for strategy development, investment research and communicating the firm’s investment themes and portfolio positioning to clients. Prior to joining Pension Partners, he was the Managing Member of Momentum Global Advisors, an institutional investment research firm. Previously, Mr. Bilello held positions as an Equity and Hedge Fund Analyst at billion dollar alternative investment firms, giving him unique insights into portfolio construction and asset allocation.

Mr. Bilello holds a J.D. and M.B.A. in Finance and Accounting from Fordham University and a B.A. in Economics from Binghamton University. He is a Chartered Market Technician (CMT) and a Member of the Market Technicians Association. Mr. Bilello also holds the Certified Public Accountant (CPA) certificate.


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