Stock Market Investing Odds
The greatest stock market myth is the idea that investing in stocks is a form of gambling!
The financial markets are often compared to a casino. Put some money on X stock and you might as well be playing craps!
If that's your impression, and it's keeping you out of the markets, consider this: If investing is organized gambling, it's one of the rare kinds where the odds are stacked in your favor!
Why is that?
Corporate profits are the key to understanding the investor's edge. By buying a share of stock gives its holder an ownership claim on that company's earnings. If those earnings go up, then the stock price will usually rise as well. Makes sense, doesn't it? Ownership of a company that has higher earnings should be worth more than ownership of a company that earns less.
An investment in the stock market comes down to this: It's a "bet" that corporate profits will rise! Based on the historical evidence, it's a pretty good wager! Not a guarantee by any means, but one where you hold house odds.
Still not convinced?
Maybe you're saying to yourself that just because corporate earnings rise in most years doesn't mean there aren't years in which they fall. True enough. But over the last 200 years, business profits have increased in far more years than they have decreased. And that's because the economies in the developed countries have expanded at a fairly steady pace with only several occasional setbacks from recessions.
And that means stockholders with a good mix of companies are more likely than not to make money!
Gambling just transfers money from a loser to a winner because it produces nothing ... excluding the severe doses of adrenaline!
On the other hand, investing increases overall wealth because the capital invested in stocks provides the initial funding for firms, which exist for the purpose to producing goods and services.
Copyright © 2005 I.E.C. Haramis
Ioannis - Evangelos C. Haramis was born in Greece and he studied in Greece, USA and in Belgium. He has been active in the stock markets since 1972. Since 2002 he is New Business Development Managing Director at an Investment Bank.
More Resources
Unable to open RSS Feed $XMLfilename with error HTTP ERROR: 404, exitingMore Stocks & Mutual Funds Information:
Related Articles
Mutual Funds are Dead
You may have wondered why your mutual funds have been going down for the past 2 years. The answer is very simple, but not one you will hear from Wall Street as they want you to send money.
How To Make, And Keep, Money Trading Stocks
If you are serious about making and keeping money by trading stocks, then there are three things you need to do, and do well.Money managementOrdersTrading systemMoney managementMoney management comes first.
Box Of Chocolates
Ever have one of those sample boxes of candy? Each little piece is beautifully wrapped in colorful foil or decorated with an interesting design. Taste just one.
Market Globalization
Just 30 years ago the stock market was a shadow of what it is today. There were many fewer shareholders and the daily volume was a fraction of what it is at present.
Buying New Issues
Has your broker been calling you recently with the "great opportunity" to get in on a new Initial Public Offering? With friends like that you don't need any enemies.I don't care how good this new stock offering sounds.
How to Find Value in No Load Mutual Fund Investing
What are you thinking when it comes to your no load mutual fund selections? Are you saving pennies and sacrificing dollars?Are you spending your time looking at expense ratios, analyzing Morningstar ratings and searching for funds with low fees and no 12b1 charges? If you are like most people, you know these things in and out. You've spent hours evaluating them, and your chosen mutual funds cost little to purchase and maintain.
Overvalued & Underbought
With all the bad news that has been dumped upon the economy for some reason the stock market is going up. Why?The SEC (Securities and Exchange Commission) has just set up new guidelines for core earnings.
Ignore Stock Market Talking Heads
You should ignore analysts on TV, the radio, the newspaper and all other TALKING HEADS when it comes to investing! What stocks do they talk about? - The same old group, every day of every year - Why? Because they don't know any better, they are sheep like the general public, repeating what every economic textbook says and every other economist tells them to say. Everyday, the same companies are highlighted on the evening news -WHY?They aren't going anywhere.
Stock Trading Diversification
This is the continuing story of our two imaginary traders, Peter and Paul.Peter is a professional trader, Paul is not.
Quality Investment Information: Standing Firm In the Face of Opposition
THERE'S SOMETHING TO BE SAID FOR standing firm in the face of opposition. Interestingly, most of the best stock decisions have come at times when the mainstream is saying precisely the opposite.
Moving Averages
Every day on CNBC-TV they show a 200-day moving average line superimposed on the stock price history. It seems they give great credence to this manufactured line as it represents 10 months of price action.
Stealth Bull
If you have been watching the stock market at all you are probably very confused. You are not alone.
Trading Education: The Best of Both Worlds!
I made my very first investment in the stock market when I was ten years old. Ever since then I have been hooked! Now I check out hundreds of trades each year with the same excitement andenthusiasm, and each time try to find that one market at the right time that could dramatically create wealth.
Stock Insurance
You have a lock on your house. You have a lock on your car.
No Load Mutual Funds: Investment Hype vs. Investment Help
With the internet such a huge part of our daily lives, many investors have access to a wide range of instant investment information.Whether you're into stocks, bonds, mutual funds, futures or options, there are tons of electronic investment newsletters offering to turn your small stake into a giant fortune.
The Stock Trading Plan - Why You Must Have One To Trade Successfully
This is the continuing story of our two imaginary traders, Peter and Paul.Peter is a professional trader, Paul is not.
Mousetrap
The spring-loaded rat catcher is the ultimate low-tech device invented more than 100 years ago and remains the best demouser in the world. It is so simple anyone can master it and best of all you can keep on using it year in and year out.
Small-Cap Stocks: The Beginning of the Journey
When an individual investor wants to roll up his sleeves and do some research in the pursuit of the next big winner in the stock market, the place many start is in the small cap sector.As with the other capitulation sizes (capitalization is a stock's market value), no one can completely agree on a precise definition, but corporations under $2 billion are often considered small caps.
How to Pay Less and Get More: Discount Broker vs Professional
How do you invest? What do you really pay? At the end of the day, what are your real results? These are questions smart investors should be asking themselves (but usually don't). In this era of more fees, misc.
Analyst Reports
When you become interested in a stock or mutual fund you can call your broker and he will send you reports on how the company is doing, what their management is like and what might be the projected earnings for the company and how the industry is doing. Great information.