Average Thinking

LeBron James has played in over 1,400 NBA games in his 21-year basketball career. In that time, he has accumulated some of the best statistics in league history. On average, he has recorded 27 points, 7 rebounds, and 7 assists per game.

Statistically speaking, this is one of the largest sample sizes in sports history since the average professional basketball career is only 4 years. James has given league executives and stat lovers plenty of consistency to know exactly what can be expected of him night in and night out for over two decades.

But how many times has LeBron James had an exact average night where he matched his career totals in points, rebounds, and assists?

The answer, surprisingly, is zero.

LeBron James has never had an average game in one of the longest careers in sports history. Investors also experience this mathematical anomaly when dealing with expected rates of return over time. The S&P 500, for example, has averaged 10% per year going back to 1928. 10% annually is a return most investors would be extremely pleased to sign up for.

However, the number of times the market returned exactly 10% in a year is only slightly more consistent than LeBron: Twice in the last 95 years. Only 1972 and 2014 were able to finish at that rare mark. It can be challenging to live through years where portfolios return less than the average. In these times, it is easy to feel like there are problems with investments or strategy, and something must be changed. Unfortunately, it is in the law of averages that some years finish below the mean.

There is good news, though, and it involves a couple of additional statistics:

• 72% of years have ended in positive territory

• 58% of the time, the market has returned higher than the average 10%

The bad times have simply not lasted, but they have provided some wonderful buying opportunities. As we look to the future, it is fair to assume that the long-term market averages will sustain themselves and continue to beat inflation. That does not mean steady and equal returns. The volatility and negative years are baked in just like injuries and bad games are figured into any athlete’s career averages.

With the basketball season beginning, this finally might be the year James catches that elusive 27-7-7 stat line. It could also be the year the S&P 500 finishes at precisely 10% growth. The math says both are unlikely. Fortunately, it also says that below-average times do not persist and that being average over time can lead to enormous success.