10 truths about the stock market
View original at finance.yahoo.com10 truths about the stock market This post was originally published on TKer.co on October 15, 2021. The stock market can be an intimidating place: it’s real money on the line, there’s an overwhelming amount of information to follow, and people have lost fortunes in it very quickly…
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Made a remarkably prescient market observation in 1994
80% confidenceOver the long term, the stock market news will be good
80% confidenceThe most commonly cited risks are the ones that are already priced into the markets. It's the risks no one is talking about or few are concerned about that'll rock markets when they come to surface
80% confidenceA stock can only go down by 100%, but there's no limit to how many times that value can multiply going up
80% confidenceThe stock market has an upward bias. There are way more people who want things to be better, not worse. And that demand incentivizes entrepreneurs and businesses to develop better goods and services
80% confidenceIn the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497
80% confidenceThe stock market generates about 10% annual returns on average
80% confidenceThe economy reflects all of the business being conducted in the U.S. while the market reflects the performance of the biggest companies — which typically have access to lower-cost financing and have the scale to source goods and labor more cheaply
80% confidenceSince 1926, there's never been a 20-year period where the stock market didn't generate a positive return
80% confidenceIt's the addition of new and unexpected companies that have been driving much of the S&P 500's returns over the past decade
80% confidenceThe S&P 500 has usually generated positive annual returns with an average drawdown of 14% during those years
80% confidenceAny long term move in a stock can ultimately be explained by the underlying company's earnings, expectations for earnings, and uncertainty about those expectations for earnings
80% confidenceWhile valuation methods may tell you something about long-term returns, most tell you almost nothing about where prices are headed in the next 12 months
80% confidence