A Question of Probability

Do you want to invest in the biggest companies in the world and not lose money? No problem! Is a profit outlook with over 90 percent probability enough for you? At this point you are rightly wondering what happened to the other 10 percent of cases. After all, that could imply that I am suggesting Russian roulette to you.

Don't worry, such morbid thoughts have no place in Gutmann Viewpoint. In the 10?percent of cases that do not yield a profit, the loss is historically small and even this can be avoided with a little patience.

Of sheep, people and gods

The word probability is a young term. 500 years ago and in the time before, people believed that the gods would decide everything. Small bones of sheep and other animals were used as a dice. They could fall on all four different sides, generating very different chances of landing on each of their sides. Of course, this was not fair in regard to probability; why should it be, man throws the dice and the gods have a good laugh.

It was not until August 24, 1654 that the light of probability began to dawn on humankind. On that day, the young Frenchman Blaise Pascal wrote a letter to the great mathematician Pierre de Fermat. The 31-year-old Pascal did not yet know that he would lay the foundation of probability theory with the ensuing correspondence about “the fair division of the stakes of a game of chance that is interrupted by external circumstances before either player has achieved victory”.

Merci beaucoup mes amis fran?ais! Thanks to you, today we are able to philosophize about the probabilities of the stock market. Let us revert to the 90 percent probability of winning.

Profit needs patience

Long-time readers of Gutmann Viewpoint already suspect it: it has something to do with time. In fact, it takes patience to pull the chance of profit toward 100 percent. Because the longer the holding period of equities, the better the prospect of profit.

phically, this reasoning is depicted like this:

?Source: Bank Gutmann

Holding stocks for a day is more or less a coin toss. The world stock market tends to go up in the long term, so the chance of profit is a little over 50 percent. However, after just a few months of holding, the percentage increases dramatically, and after three years, the probability of loss drops to less than 20 percent on average.

Nevertheless, beware: This is merely an indicative line, based on historical stock market returns. This is exactly where the critics come in: there is no guarantee that the future will look the same. Additionally, it is important to remember that low probability of occurrence is not the same as “it is absolutely impossible.” A few percentage points is not zero percent, nor does it imply that the happy ending necessarily will happen.

Goals and cooperation

It is important for you to have a trustworthy partner by your side. This applies to every situation in life, especially with your finances. Do not leave your money to chance and forget about rolling the dice with sheep and animal bones.

We accompany you along this journey and regularly and jointly review with you the direction you have established and the goals you have set. Thus, this increases the probability of successful cooperation and increases the chance for good decisions.

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This is a marketing communication. Investments in financial instruments are exposed to market risks. Past performance or forecasts are not reliable indicators of future results. Tax treatment depends on each client's personal circumstances and may change in the future. Bank Gutmann AG hereby explicitly points out that this document is intended solely for personal use and for information only. Publishing, copying or transfer shall not be permitted without the consent of Bank Gutmann AG. The contents of this document have not been designed to meet the specific requirements of individual investors (desired return, tax situation, risk tolerance, etc.) but are of a general nature and reflect the current knowledge of the persons responsible for compiling the materials at the copy deadline. This document does not constitute an offer to buy or sell or a solicitation of an offer to buy or sell securities.

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