Why Staying Invested in the Stock Market Pays: The Power of Positive Drift and Time

hrush4u
7 days ago
2 min read

One of the most repeated mantras in investing is: Stay invested for the long term. But why does this hold true? Is it just anecdotal wisdom or is there hard evidence and statistical reasoning behind it? If we look closely at the daily returns of a market index like the Nifty 50, we find something fascinating—an upward drift in returns that, over time, compounds powerfully.

This blog will break down the math, market behavior, and psychology behind long-term investing and back it with data.

The Positive Drift in Markets

Markets, especially broad-based indices like Nifty 50 or S&P 500, tend to reflect the underlying economic growth, innovation, productivity gains, and expansion in corporate earnings. This economic momentum translates to what statisticians and quants call a positive drift in the return distribution of an index.

If you were to plot the daily returns of Nifty 50 over the last 20 years, you'd notice:

Most daily returns hover around zero.

But the mean daily return is slightly positive.

This small average, when compounded, delivers significant long-term returns.

Let’s back it with some numbers:

Sample Data Analysis (Nifty 50: Jan 2004 – Dec 2023)

Total Trading Days: ~5000

Mean Daily Return: ~0.05% (or 0.0005)

Annualized Return (compounded):

(1 + 0.0005)^252 − 1 ≈ 13.8%

That’s your 14% return myth—grounded in mathematics, not magic.

The Magic of the Normal Distribution

As the investment horizon stretches from daily → weekly → monthly → yearly, the distribution of returns becomes smoother and more predictable. The Central Limit Theorem explains why aggregated returns (monthly, yearly) begin to follow a normal distribution, even if daily returns are volatile or skewed.

Over long periods:

The mean of these returns remains positive.

The standard deviation (volatility) reduces relative to time.

Hence, probability of negative return drops sharply.

For example, here’s a simulation (based on Nifty data):

Investment Horizon Probability of Loss

1 day ~47%

1 month ~36%

1 year ~24%

5 years <10%

10 years <1%

Volatility vs. Time: Time is Your Friend

Markets are noisy in the short term—geopolitics, Fed policy, elections, and even Twitter can cause intraday or weekly whiplash. But over time:

Corporate earnings matter more than tweets.
Fundamentals outplay speculation.
Volatility gets ironed out, revealing the long-term trend.

Why Retail Investors Fail to Benefit

Despite this, many retail investors underperform the index because they:

Panic during volatility.
Time the market poorly.
Exit too early after minor losses or gains.
The cost of market timing is almost always higher than the reward of patience.

Conclusion: Stay Invested, Stay Rational

The long-term equity story is supported by structural economic growth, reinvestment, inflation hedge, and compounding. Daily market noise may feel overwhelming, but statistically, the odds are in favor of the long-term investor.

So what should you do?