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By Seth Jayson (TMF Bent) Motley fool
Last month, I wrote a little article (with nearly the same name as this one) aimed at exposing a fairly common market myth: the idea that any individual can trade his or her way to supersized returns, day in and day out.
"All I need is the chart," these hopeful traders tell me. They say, "Give me jumpy, high-volume, popular stocks like Qualcomm (Nasdaq: QCOM) (which has swung 5% this week, and easily moves 2% in a day), and I can skim a few percent per trade, 50% or 100% a month."
"That will make me rich!"
Or so the story goes.
It sure would make you rich. A trillionaire, actually. And in short time. Starting with $1,000 and getting those 100% returns every month, you'd have a tidy $34 trillion before the end of three years. If you could actually compound at 5% per trade, 15 times a month, my Excel spreadsheet tells me you'd have $276 trillion at the end of 36 months. This alone should have been sufficient evidence to prove that the thesis is bunk.
But some folks (well-meaning, to be sure) misunderstood and wrote asking me for further details on this amazing moneymaking plan.
So much for subtlety.
Let's set the record straight right here: This is not possible.
Bad news? Not really.
The good news is: It is possible to turn thousands into millions, but not via the trading gimmicks. The keys to making millions in the market are persistence, patience, and time.
Uh-oh. I think we just lost the get-rich-quick crowd.
But congratulations to those of you who remain. Avoiding the bogus promises of the "no work, free money" industry is step one to investing successfully. The next is embracing the obvious. The data shows that the way to beat the market isn't with stomach-curdling hot tamales but with boring value stocks.
About that good news
My colleague Bill Barker recently penned an article called "70 Times Better Than the Next Microsoft." (Yes, we've got a special on inflammatory titles this month.) In it, he explains why value wins in the long run. Here's a one-sentence summary:
It's because the growth-chasers out there always overpay.
Here's where you profit from market mania: by making a habit of buying solid businesses that the market presumes to be closer to dead and buried. Look at the same figures for a few boring, well-known companies over that same period.
When everyone thought the Internet would change the world, no one wanted companies that did things like building loaders, selling smokes, or serving cheap tacos. But the companies doing these things continued to prosper, and they treated shareholders to amazing returns once the Street came back to its senses.
The lesson is simple: Investors invariably do better in the long run by refusing to overpay, and you can do that when you buy what everyone else ignores..... reality might not be 70 times better than the next Microsoft, but it could still be pretty sweet.
Last month, I wrote a little article (with nearly the same name as this one) aimed at exposing a fairly common market myth: the idea that any individual can trade his or her way to supersized returns, day in and day out.
"All I need is the chart," these hopeful traders tell me. They say, "Give me jumpy, high-volume, popular stocks like Qualcomm (Nasdaq: QCOM) (which has swung 5% this week, and easily moves 2% in a day), and I can skim a few percent per trade, 50% or 100% a month."
"That will make me rich!"
Or so the story goes.
It sure would make you rich. A trillionaire, actually. And in short time. Starting with $1,000 and getting those 100% returns every month, you'd have a tidy $34 trillion before the end of three years. If you could actually compound at 5% per trade, 15 times a month, my Excel spreadsheet tells me you'd have $276 trillion at the end of 36 months. This alone should have been sufficient evidence to prove that the thesis is bunk.
But some folks (well-meaning, to be sure) misunderstood and wrote asking me for further details on this amazing moneymaking plan.
So much for subtlety.
Let's set the record straight right here: This is not possible.
Bad news? Not really.
The good news is: It is possible to turn thousands into millions, but not via the trading gimmicks. The keys to making millions in the market are persistence, patience, and time.
Uh-oh. I think we just lost the get-rich-quick crowd.
But congratulations to those of you who remain. Avoiding the bogus promises of the "no work, free money" industry is step one to investing successfully. The next is embracing the obvious. The data shows that the way to beat the market isn't with stomach-curdling hot tamales but with boring value stocks.
About that good news
My colleague Bill Barker recently penned an article called "70 Times Better Than the Next Microsoft." (Yes, we've got a special on inflammatory titles this month.) In it, he explains why value wins in the long run. Here's a one-sentence summary:
It's because the growth-chasers out there always overpay.
Here's where you profit from market mania: by making a habit of buying solid businesses that the market presumes to be closer to dead and buried. Look at the same figures for a few boring, well-known companies over that same period.
When everyone thought the Internet would change the world, no one wanted companies that did things like building loaders, selling smokes, or serving cheap tacos. But the companies doing these things continued to prosper, and they treated shareholders to amazing returns once the Street came back to its senses.
The lesson is simple: Investors invariably do better in the long run by refusing to overpay, and you can do that when you buy what everyone else ignores..... reality might not be 70 times better than the next Microsoft, but it could still be pretty sweet.
