In the last fifteen years, there has been a revolution in the NBA where on-the-court players attempt their shots. The Golden State Warriors are the subject of a lot of headlines these days for its remarkable shooting efficiency and its focus on the three-point shot, but the evolution of NBA scoring is seen widely in all NBA teams’ stats. In the 2018-19 season, the average NBA team is attempting an astounding thirty-two three-point shots per game. That’s compared to only fifteen three-point shot attempts per game in the 2003-04 season.
The Houston Rockets relies heavily on the efficiency of the three-point shot. In the 2018-19 season, its players attempted three-point shots at an incredible rate of forty-five per game while making 36 percent of these shots. In the 2008-09 season, only one NBA team scored an average of ten or more three-pointers per game.
This season, two-thirds of teams are converting three-point shots into points ten or more times per game. Just ten years ago only seven of thirty NBA teams attempted more than twenty three-point shots per game. Now all the teams are attempting at least twenty, and the NBA average is more than thirty three-point attempts per game. Shooting three-point shots at a 40 percent success rate gives a team a higher average point score per possession, and that slight advantage is large when spread over one hundred possessions per game.
Scoring analysis shows that the most inefficient shot a player can attempt is in the area between sixteen feet from the basket and the three-point line. It is for this reason that in today’s game you will frequently see a player with a wide-open, seventeen-foot shot pass the ball out to a player beyond the three-point line to attempt a shot.
Although the team is choosing to take a much lower percentage shot, the attempt is more efficient at scoring points over an entire game. This season only 8 percent of superstar shooter Steph Curry’s shots come from this inefficient area. That’s down from 30 percent a decade ago. Teams now routinely only shoot from eight feet or closer to the basket, or from beyond the three-point line. NBA teams have decided that “go big or go home” is the only way to play the game.
While the concept of “go big or go home” may be a new paradigm for the NBA, for stock market investors this all-or-nothing nature of equity returns has been around as long as the stock exchange itself. While most investors do not realize it, the stock market over the past hundred years has generated returns in this same “go big or go home” manner. While the S&P 500 shows average annualized returns of more than 9 percent a year over this period, the actual results are very much “go big or go home.”
Like the eighteen-foot NBA shot, a calendar year return in the range of 0-10 percent is very rare as a yearly return in this range has only occurred in 15 percent of all market years. Much more likely is the “go big” range of market gains (more than 10 percent in a year) as we see these large returns in 60 percent of all market years. More common than 9 percent gain years are years in which stock market performance is below 0 percent; these are seen in 25 percent of all years.
In some years, stocks rise far more than anyone expected, and sometimes stocks fall much more than expected. In 2009, during a crippling recession and at a time when sentiment about the future of the United States economy and the stock market was at its most negative, stocks rose 26.4 percent. In 2018, in an economy with strong corporate earnings growth, low unemployment, high consumer confidence, and low inflation, stocks declined. They were down 5 percent. Nobody is an expert at predicting the direction of the stock market in the short term, so you should not try, or even listen to, seemingly smart folks who claim they have more vision about the future than a Magic 8 Ball.
While it would be far more pleasant to simply chug along every year enjoying stock market returns of 9 percent, the market has a mind of its own. The stock market went big in 2013, gaining 32.4 percent, but went home in 2015, rising only 1.4 percent. The market went big in 2017, rising 21.8 percent, but went home in 2018, losing 5 percent. It may be frustrating that all these years are considered normal equity market performance, but that is the cold reality of stock market investing, and is what makes it so confounding, interesting and rewarding for patient, long-term investors.
To enjoy the years when the stock market goes big and delivers strong returns, an investor must stay strong and persevere through the years in which the market performs poorly as it did in 2018.
