With the stock market returning, on the average, about 10% a year, it seems extremely easy to make money. There are two ways to lose though, and both are very popular. As Martin Luther said, “human reason is like a drunken man on horseback: set it up on one side, and it tumbles over on the other.'” Many people in each generation distrust the market and refuse to “gamble” with their money. That lasts for a long time, but after it becomes extremely obvious that others are making money, the distrustful give in and buy whatever just went up in price, only to see it go down, whereupon they sell, locking in the loss, and convincing themselves that they were right to be distrustful.
Terrible Idea #1: Gamble with the stock market:
If you try to use your pliers as a hammer, it won’t work well and you’ll eventually ruin the pliers. Same thing with the stock market. If you gamble with the stock market instead of investing in it, why wouldn’t you expect to get the gambler’s result (the casino gets richer and you get poorer).
Terrible Idea #2: Sit out of the stock market:
If you need to use a hammer, but refuse to go get it, your project will be much longer, quite risky, and very frustrating. If you sit out of the market, you lose the great long term returns while behind your back inflation slowly erodes your savings.
The stock market is one of the wonders of the modern world. If you use it for what it’s good for (making money over time) it works well.
