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Many people assume that there is much skill involved in investing in the stock market. It is a statement that couldn’t be truer, but not the way it is commonly believed. The market is random and very unpredictable. However, as whole, over the course of its existence has produced a positive return. All that means is if you would have had a portfolio that consisted of a proportional amount of every stock in the market, over the course of time, you would have managed an annual return around 10%. Not to bad of a return, in fact, there is not a single investor that has ever consistently beaten the market average.
We all have heard the phrase, “if it sounds too good to be true, it probably is”. Well this applies deeply to investing in the market. All information regarding the market is public knowledge. For simplicity sake, Ill compare a stock to an item on eBay. When an item is up for bid, everyone has equal access to it and knows an equal amount of knowledge about it. Therefore, when that item sells, the winning bid is what that item is worth. People may say, “Well it was worth more than what it sold for”, suitably if that is so, than it would have sold for more. What I mean is, something is worth, what someone is willing to pay for it. Stocks are no different; there are no advantages in the stock market game. The only skill is being able to properly diversify and do your best to achieve the market average. The market is about long term results and I like mentioned early, no one has ever consistently beaten the average.
I will writing a post that discusses diversification, speculation and randomness in more detail, in the near future.
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Originally Posted by Lambo
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