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!
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