(This article is part one in a two part series on the battle between stocks and real estate.)
“If only I had bought Apple stock when I had the chance! It was $X per share and now look at it! I would be so rich by now”.
No doubt this story sounds familiar to you. I’ve heard it dozens of times about dozens of stocks. “If only”. It is this story that drives millions of Americans to faithfully throw thousands of their hard earned dollars into the hands of stockbrokers with the hopes that they can pick the right stock and they too can be rich. It is completely absurd. The stock market is the worlds largest lottery, and as Dave Ramsey says, a lottery is just a “tax on the poor”.
For every one “hero story” of a stock soaring from bottom to the top there are hundred or thousands that disappear from the stock market entirely, giving investors a loss. In fact, in 1988 the Wall Street Journal did an experiment which pitted professional stock brokers against someone blindly throwing darts at a newspaper stock sheet. The results? The professionals only slightly beat out the darts, embarrassing the brokers and confirming that picking the right stock is a gamble even for those who’s whole life is dedicated to it.
When people look back and say “If only I had purchased X stock in X year, I’d be rich” it might be true. However, cheap stocks are cheap for a reason – they might not go anywhere. The vast majority do not. Clearly, if we could hop in our Delorean and fly with Marty back to the past we could tell our old selves what we should invest in. This just isn’t plausible in our world, so we must find another way to invest and secure our future.
Next time I will look at a favorite among personal finance gurus called the mutual fund and why average returns are for average investors.
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