Dozens, hundreds of studies, in several countries, using different methodologies demonstrate that investing in stocks is what generates the highest return in the long term. Nothing, anywhere, beats long-term equity returns.
On the other hand, “real world” evidence shows that 99% of people fail when they invest in stocks. That’s the big question.
If investing in stocks is the best, why do people lose? What would explain this paradox? I have a series of questions in mind that I will share in this space.
The first point that explains this paradox is in the opening sentence “greater return in the long term”. In Brazil, mainly, I notice that new investors start in the world of stocks with a merely speculative focus.
Facing the Stock Exchange as a kind of casino or a money making machine.
Even worse. Many are attracted by tempting promises of quick and easy profit in day trading and trading. Regarding day trade, a survey by the FGV commissioned by the CVM itself showed that of the 98,378 people who started on the Stock Exchange by day trading, 99.43% failed and only 127 people achieved positive and consistent results.
Sellers of illusions take advantage of people’s lack of knowledge and naivety and exploit this lode by promising easy and quick gains.
I reproduce here a shocking excerpt from an advertisement by a seller of trading courses: “Day trading is a quick and easy way to earn money in a few minutes, without leaving home”. Surely if it was that easy we’d all have Porsches and Ferraris and I don’t see that many driving around on the streets.
Unfortunately, many people get lost on this path and give up “investing” in the Stock Exchange because their first contact with the Stock Exchange was extremely negative. This scenario leads us to the second point: excess information and lack of quality.
There was an exponential growth of channels, pages, podcasts, groups, etc. It’s digital democracy! Lots of information and little knowledge. And new investors still don’t have the ability to filter from this ocean of information what is useful and true knowledge.
In recent years we have noticed a proliferation of new financial influencers who have never had contact with the financial market, do not have the necessary experience, certainly some have never invested in stocks or have market certifications.
How could these people teach anything about finance or the stock market? However, oddly enough, many of these new “financial communicators” with their communication skills manage to engage and influence many new investors. Obviously, the result of this equation will not be positive for the investor.
Some investors start to invest in the Stock Exchange in a more conservative and assertive way: They study some books, take courses from good financial educators, understand that stocks are “parts” of a real company that has factories, employees, profits; and, above all, they understand that investment must be focused on the long term.
But there is the “short-term long-term investor”.
That is, as he still has little experience, his tolerance for volatility is very low.
Any abrupt movement on the stock exchange, in politics, in the global context, a crisis and that’s it! There is our friend selling his shares and complaining that the Stock Exchange is not for him, blaming his failure on the analyst or investment advisor.
You have to understand that long term is long! How long is the long run? 20 years, 30 years, 50 years, a lifetime! As Warren Buffett would say “Buying stocks is like a marriage, it should be for life” and, complementing with the brilliant phrase of Charlie Munger , “the big money is not in the purchase or in the sale, it is in the wait”.
Many investors, including some who have invested in the Stock Exchange for decades, have poor results.
If the money were simply invested in the Savings Account, the results would be much better. Why does this occur? Exclusive focus on “Stock Appreciation Percentage” or “Portfolio Appreciation Percentage”. How do you say Luiz Barsi Filho “Valuation is a vanity metric.”
This sentence is sensational and I completely agree with him.
Investors worried about outperforming the Bovespa Index buy at the wrong time, sell at the wrong time and, above all, do not pay the dividends.
Dividends should be the investor’s main focus. Dividend growth should be the most important indicator of investor results. As I always say “the price in the short term is iffy, but the dividend is almost certain”.
The secret of an investor’s success is not related to luck, to the speculation of knowing which stock will appreciate in the coming months, to his intelligence or analytical capacity. I’ve seen super-intelligent people behave like immature little children in the financial market.
An interesting example: Albert Einstein and Isaac Newton were two geniuses of humanity. But in the world of finance, they lost a lot of money investing in stocks with a purely speculative focus.
The secret of investor success lies in patience and discipline. In buy and wait. Focusing on passive income growth (earnings) and not on appreciation.
Believe me, investing in stocks is the simplest way to make an ordinary person a millionaire, generate financial freedom and a comfortable life for your entire family.
But it takes time, the long term is long, and many people look for shortcuts that lead to failure. As Warren Buffett said “no one wants to get rich slowly on the Stock Exchange”.
Source: Moneytimes
I am an author and journalist with a focus on market news. I have worked for a global news website for the past two years, writing articles on a range of topics relating to the stock market. My work has been published in international publications and I have delivered talks at both academic institutions and business conferences around the world.
