How to Win the Stock Market Game
After I opened my robo-investing account, my partner asked me what was next for me on my “money journey.” I said, “I think I just need to start learning more about stocks and figure out the best ones to pick!”
I was so wrong.
Less than 1% of the population has proven they can accurately pick stocks (and even for that tiny percentage of people, they were most likely simply lucky rather than smart). So unless you’re literally willing to dedicate your life to picking stocks (and even then, there’s an extremely high chance you’ll make the “wrong” picks), just forget about it.
What does it mean to pick (and trade) stocks?
Picking stocks basically means that you are looking at individual companies and choosing which ones you want to buy stock in because you predict they will increase in value. For example, you could look at Disney and say “hey, I think Disney stock will go up in value over the next few years so I’m going to invest in it aka buy stock in Disney.” Trading stocks means you closely look at the stocks you’ve invested in and decide when and how to “trade them” i.e. sell them and buy different stocks that you predict to be more lucrative. Picking and selling stocks is playing the stock market.
The reason picking stocks doesn’t make sense is because you NEVER KNOW what a stock is going to do or when. There are some people who say or think they know what stocks will go up or down in value, but like I said earlier, a ton of research has shown that it’s nearly impossible to pick stocks accurately and “beat” the market.
Uhhh…beat the market?
Beating the market means you earn a return that is better (a higher percentage) than the S & P 500 index (this is one of the more popular benchmarks of the U.S. stock market performance). It’s an index fund made up of the 500 largest U.S. publicly traded companies. Adjusted for inflation, the historical average of the S&P 500 is about 7%. To beat the market, you’d have to invest in a stock that gave you a return greater than this. If any of this is confusing, don’t get caught up in the language. Beating the market just means getting a really good (high percentage) return on your investment.
What is the alternative to stock picking? When you invest in the market, don’t you HAVE to pick stocks?
This is a huge misconception — and one that I had for such a long time. Investing in the stock market is NOT equal to buying individual stocks in the market. The clearest alternative to stock picking is letting an advisor (can be a robo-advisor if you don’t have the funds for a real live human — that’s what I do!) expose your money to the stock market through diversified, passively managed funds. This means they will expose your money to a variety of stocks and bonds and they will passively manage it (they’re not trying to actively trade and sell stocks aka they’re not trying to be stock pickers or play the stock market game! If they are, find someone else! Anyone who says they can pick stocks accurately is likely full of shit).
TBH, understanding all of this at a high level doesn’t matter that much (if anything so far confused you, again, don’t get caught up in the language). Let’s focus on the significance.
What is the significance of all of this?
There were many reasons I didn’t invest in the stock market until I was 25 years old (I’ve shared those reasons in previous posts like this one and this one). Among these reasons, though, was this underlying belief that I just DIDN’T understand the stock market and that in order to get invested I’d have to really understand it. I assumed everyone invested in the stock market had done their extensive research and was an expert of sorts.
Yes, there’s so much we can do to educate ourselves about the stock market (that’s part of what we’re trying to do here!), but at the end of the day, the biggest thing I’ve learned is that it’s just important to get in there! You don’t have to be perfect, you don’t need to “get” stocks, and you don’t need to know which stocks will go up or down. All you have to do is have some money that you’re willing to part ways with for a while for the greater good (the good being that your money will likely grow OVER TIME and you’ll have more money when you’re older!).
But here’s the good news: the fact that picking stocks “correctly” is almost impossible should be a relief to you. It means you have time to do all the other things you wanna do in the world and you can just dump some money (or dump a little each month) into the market and walk away! I know I don’t want to spend all day watching and tracking the markets to find the perfect stocks to invest in or perfect time to invest. I also know this is statistically HIGHLY unlikely to work for me.
So what’s the best way to “win” the stock market game? Don’t play it.
Disclaimer* I am NOT a financial advisor, I have no formal training in this space, and I am not authorized to give advice on how to manage your finances. I am literally a woman who realized she didn’t have her financial sh*t together, who felt systemically kept in the dark about money, and who is trying to learn as best she can how to get out of the dark.
TLDR!
Picking stocks means choosing certain stocks you think will go up in value over time — this is playing the stock market game.
Less than 1% of the population can accurately pick stocks that “beat the market”. Even those who can were probably just lucky.
Beating the market means getting a return that is higher than average market returns (historically ~7%).
Instead of picking stocks, get an advisor, or robo-advisor, to expose your money to the stock market.
The best way to win the stock market “game” is not to play.
