It is true. Stock returns can be unpredictable, which is why so many feel investing is like gambling — irrational, even scary. Echoing that sentiment, The Wall Street Journal’s Jason Zweig wrote over the weekend, “There is something poignantly human about every attempt to make markets behave as we all wish they would: always rising and making us richer, never falling and inflicting pain upon us.”
For all the volatility we’ve experienced this year, stocks are basically flat to modestly up. Down 300 points one day, up 250 points the next day. Exhausting, right? Only if we focus on the daily movements in stock prices. As investors, we must be in it for the long term, buying shares of stocks we are willing to own for a lifetime. Here’s why. According to the Dalbar 2010 Quantitative Analysis of Investor Behavior Study, the S&P 500 returned 9.14 percent over the previous 20 years, while the average investor in equity mutual funds earned 3.83 percent. This is because individuals tend to sell based on emotions, at just the wrong time. Yielding to emotions does not yield profits.
Let’s look at it another way. To read more please click below: TheArizonaRepublic
You may have heard the old adage: If you don’t like company management, vote with your feet and sell the stock.
Benjamin Graham, author of the 1949 classic The Intelligent Investor, calls that attitude “fatuous and harmful,” for it does nothing to improve bad management and merely shifts the problem to someone else. Graham was a believer that “investors make money not out of each other but out of … businesses.”
In the daily hype surrounding the stock market, the purpose of owning stocks is often lost on the average investor. The prevailing sense that investing is gambling or sport (words such as “bet” or “play” when referring to investing make me cringe) is unfortunate. Investing is neither. When we buy shares in a company, we are buying the company’s management team as well as a portion of the company’s future earnings. This is our management team, and we are counting on them to execute a sound business strategy and robust earnings growth.
Because the nature of stock ownership is a little less tangible than say, real estate, it is even more imperative we have confidence in the management team. This past weekend, Barron‘s published its annual listing of the “World’s Most Respected Companies.”
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