Watching the 20/20 final last night, it occurred to me how similar 20/20 cricket is to investing…
Imagine a cricket over to be like a year of investing. There will likely be a few overs full of 6’s and 4s, but also overs with dot balls and a few wickets. The results from each over will vary wildly from 0 runs and a few wickets, to 25 runs+. For the most part however, everyone has their eyes firmly fixed on the required run rate per over to win. We know what run rate a good team should be able to achieve based on past performances. It is exactly the same with investment markets.
The long term expected return for a balanced risk profile we expect over time should be around 7-8%pa. From year to year, results will vary from mid double digits, to flat if not negative returns. Over time however past performance has given us a fairly reliable estimate of long term return. Fortunately for investors, the long term average is based on 5-7 yrs and not 20, and more importantly the return compounds when earnings are reinvested!
Congrats to the Sydney Thunder for a nail biting win!