Playing the stock market

The Advocate, Wednesday November 9, 1994

The following is a comment from Wellington O'Neil's book: "How to make More Money in Stocks." It reinforces once again, the overview. It reads:
"From August 1982 to August 1987, the stock market staged a phnomenal 250 percent increase. Employees' pension funds made a fortune. Then one day in October 1987, the market dropped a record 24 percent. Sanity and reality returned.

That's the stock market!

During the last 150 years, we have had twelve bull (up) markets and eleven bear (down) markets. But ..., guess what?

The bull (upwards) markets averaged an upward gain about 100 percent, and the bear (downwards) markets, on an average, declined 25 percent to 30 per cent. Not only that, the typical bull market lasted 3 1/2 years and the classic bear market lingered only nine months.

Viewed with perspective ... that's a terrific deal.

But I will go you one better. Did you know that in the last 100 years we have had more than 25 bear market slumps (natural, normal corrections of the previous bull market advance), and every single time the market recovered and ultimately soared into new high ground!

That's fantastic!

What causes this continued long-term growth and upward progress? It's one of the greatest success stories in the world... free people, in a free country, with strong desires and the incentives to unceasingly improve their circumstances.

The stock market does not go up due to greed. It goes up because of new products, new services, and new inventions... and there are hundreds of them every year. The innovative, entrepreneurial companies with the best quality new products that serve people's needs are always the top stock market winners."

Why do most small investors lose in the stock market despite this phenomenal success story? Some of the most important reasons are:
1. Lack of diversification.
2. Buying high and selling low because of a fear of losing.
3. Insufficient knowledge.
4. Lack of time to research.
5. Not being a contrarian.
6. Not holding stocks for a sufficient length of time (approx. 5 years).
7. Not using professional money managers.

From 1960 to 1990 the ten best months provided two-thirds of equity returns.

This is because the returns from shares come in intense bursts of activity rather than from steady day-by-day upward progression, and these rapid upward moves are difficult to predict, often coming when most investors are holding cash. There are long periods of little or no return which often try the patience of equity investors and tempt them into other investments like T-Bills.

In real estate investing, the three rules are: location, location, location. With equity mutual funds, it's patience, patience, patience.

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