So can you make money in stock market?
Well, the quick answer to this question would be yes, God, it depends.
Usually the average investor doesn't make a lot of money in the stock market.
In this video, I will talk about the reasons why and what can you do to change?
Can you make money in stock market?
Definitely, yes.
The average annualized return for the S&P 500 is nine point eight percent.
And this is an average from the best 90 years.
So this is like a huge amount of data we have, right?
Nine point eight percent.
This is actually pretty good.
Sadly, the average investor doesn't reach this sort of return.
Let me show you an example.
If you, for example, started with ten thousand dollars and you add it every year at the beginning
of the year, you added two thousand dollars to your account and your annual return would be nine point
eight percent.
So basically the average return of the broad market over 50 years, you would get three million, four
hundred and fifty one thousand and one hundred and twenty four dollars, which is a lot.
And this is the effect of compounding.
If you ever a year get the 10 percent return, it will compound and compound and compound.
And in the end, you will have a lot of money.
You may also notice one thing.
What do you think will be the return if you, for example, invest only over 40 years?
Make a guess.
It will actually be only one million and a free hundred thousand.
So that's basically almost a third of the money that you would have made if you stayed then years longer.
And this is a huge thing to wrap your minds around.
The effect of compounding basically have the highest impact in the end.
Because when you have a lot of money in the stock market, the nine point eight percent from one million
is ninety eight thousand dollars.
Right.
That's a lot of money.
A nine point eight percent from 10000 is just nine hundred and eighty dollars.
There is a huge difference in this.
OK, let's say that we stay in the market only for five years.
Pretty bad return if you put it in the terms of money.
We will actually resolved with twenty nine thousand dollars.
And if we think about it, you are actually putting into the markets 20000 of your own money.
Right?
That's your investment.
That's the money that you put in.
Yeah.
I mean, third of your money in five years.
It's pretty good return, but it's not like a huge astronomic number.
Right.
And so for these sort of high numbers, like a million and a free millions, you have to stay in the
market for long periods of time.
Stock market is not some sort of get rich quick scheme.
It really takes up tens of years.
Right?
Maybe even like 15 years in order to really 40 compounding to really have an effect.
But that was with the average return of the S&P 500, which is the broad index fund consists of 500
largest companies in the U.S..
But what do you think is the return of an average investor?
Well, it's actually a lot smaller.
S&P 500 is somewhere around here with nine point nine percent.
Okay, that's pretty good.
Then we have some sort of portfolios like 60 percent stock, 40 percent bonds.
Right.
Bonds are thought of as a sort of safer investment.
Right.
It doesn't fluctuate too much.
And you get your interest payments every year.
So they are considered safer.
But as you can see, over the long term, stocks outperform bonds by pretty large margin.
You may think like three percent isn't a lot, but when you take into consideration the compounding,
it's a huge amount.
OK, it's like relet a lot.
Also, you can you can see other things like gold and oil.
Right.
Even gold outperforms the average investor.
The average investor, as you can see right here, barely keeps up with inflation.
What is inflation?
Well, it just means that your money loses some of its value over the time.
Okay.
So, for example, if I have one hundred thousand dollars today, in the year from now, it would be
worth somewhere around ninety seven thousand six hundred.
OK, so basically the value of the money goes down.
And the average investor barely keeps up with inflation.
What that means.
It means that the average investor basically usually gets from the market what he put it in.
So in our example, for example, with the five years the investor put in twenty thousand dollars and
he would get something around twenty thousand dollars back.
So why do we suck it investing.
Right.
If you think about it.
If you put all of your money into S&P 500, some ETF that tracks this index.
So, for example, spy or some other, you would basically get the return of the market.
So it is really easy to get the return of the S&P 500.
You just put all of your money into spy.
So why the average investor doesn't do this?
Well, there are a couple of reasons for that.
Usually people just wants to be in control and they feel like they are the smartest human beings and
they can do better than the average.
So they are basically trying to beat the market.
And as you saw on the previous chart, it usually doesn't end up well.
But there are definitely a lot of exceptions, for example, like Warren Buffett and definitely auto
investors who are beating the market on a consistent basis.
But people like Warren Buffett are more like a exception than a rule.
So the average investor usually just thinks short term.
Right.
People often have some sort of short term mindset.
They just want to get rich quick.
And this is just not for a investor.
A good investor doesn't think this way.
Right?
He doesn't think like I want to get rich in the next six months.
Right.
He knows that investing will take a long time before it will have a czar.
People have all sorts of psychological biases that affects their decision making.
And we are really emotionally driven human beings.
And when you are investing in stocks, it's not really a good thing to be emotional.
Another thing why investing might not make you rich is that you need funds.
OK.
As I showed you in those first examples.
Right.
The amount of money that you put in from the beginning will have a great effect on the money that you
will have if you have 20 percent return in a year.
It is a great right.
You are great investor.
But if you have this return on, let's say, a thousand dollars, it means that you will end up with
just one thousand two hundred dollars, some other investor debt to have a, let's say, nine point
eight percent return.
But as investing with a hundred thousand dollars will earn much more.
OK.
And another thing is that we are pretty bad at investing, right?
We like to gamble.
We we would.
We love to buy speculative stock.
Right.
So we would love to risk our money.
We just love this.
And we also Roff to invest without doing any proper research.
And I always find this fascinating that people are able to do tremendous amount of research when they
are buying a fridge or a television or whatever.
Right.
Or some laptop.
But they don't research what company they are buying.
And I mean, if you buy a laptop for.
I know.
Like 1000 dollars.
Yeah.
I mean, you should do some research.
But when you are buying a company with all of your life savings.
Right.
With I know.
Let's say just then tens of thousands of of dollars, you should probably do much more deeper research.
Then when you are buying a laptop.
Right.
The simplest way to actually improve your turn is to just invest in a index fund.
And there are a lot of people out there.
Dad would recommend investing in a index fund.
One of them would be Warren Buffett.
Warren Buffett himself, even though he beats S&P 500 over a long period of time.
Right.
He has a great track record.
He is probably the best investor of all time.
Even he will recommend to the average investor to buy a index fund.
But for some people who are able to do some research, have a investing strategy, and they follow that
strategy.
Right.
They don't invest with their emotions.
They don't invest for the short term.
Right.
They are long term investors that are able to stay in the market for five, 10, 20, 30 years.
They are usually active investors and they are usually trying to beat the market.
And they definitely can be the market.
A lot of great investors like Peter Lynch would say that you as an individual have everything you need
in order to beat the S&P 500 and earn more than just those nine point eight percent annually.
Right.
Peter Lynch, for example, earned almost 20 percent annually.
Right.
Which is.
A great track record.
Right.
And he basically things that everyone can do well in the stock market.
If you have you have the brainpower, you have everything that you need in order to do well.
All you have to do is just do some research and learn about how to invest right.
From those bright people like Warren Buffett or Peter Lynch himself.
And you got this right.
It's not that hard.
But on the other hand, a lot of people disagree with Peter Lynch on this issue.
And they think that it is really hard to beat the market.
And I think so, too.
I think that it's extraordinarily hard to beat the market and most fund managers can't do that.
OK, most fund managers that work in those fancy banks and wear a fancy suits or whatever.
Right.
They can't beat the S&P 500.
So, yes, investing can make you rich, can make you money.
You can earn a lot of money in.
When you are investing.
But an average investor doesn't earn a lot, usually for an average investor.
It might be smarter to just buy an index fund.
And also another thing is that you have to stay in the market for a long period of time.
So, for example, like 50 years and for some people, it might make sense to be an active investor.
So that means you actually pick the stocks and you don't invest in a index fund.
You do your research and you are trying to beat the average investor, because if you can beat the S&P
500 only by a few percentage points, it will make a huge difference in the end in the long term.
Right.
And in those 20 years.
So, yes, that's pretty much it.
I hope you enjoyed this lecture.