Optimism and compound returns are difficult to understand and to teach, but they are the biggest secret to stock market success.
How we learn to be optimist
At one time in history, people were afraid to get into an elevator that was not controlled by a person. It took decades to understand that it was OK to hop into an elevator and to have faith that it would take you to the floor where you wanted to go.
Today we are having a similar transition with self autonomous vehicles. Although it has been proven that they are safer than vehicles driven by humans, humans still don’t trust them. In the near future people will think twice before getting into a vehicle driven by a human and will not hesitate to get into a vehicle driven by some kind of artificial intelligence. We will have more faith in the technology.
It’s already happening with commercial flights. Most commercial airplanes are flown by auto-pilot and not by the human pilots themselves, and the safety record of the airline industry is admirable.
Optimism and the stock market
We already have hundreds of year of stock market history. People make the most amount of money when they buy a diversified portfolio of stocks and let then so their compound growth. In our modern days, you buy a stock index and you just let it grow.
We have hundreds of TV personalities, telling differently. They will tell you that if you do your homework and research the market, you will be able to find stock picks that will outperform everybody else; however, evidences show the inverse, evidence show us that 80% to 90% of professional stock market stock pickers don’t perform better than the stock market index.
The Quebec Pension Fund, which is full of smart people with numerous finance degrees, continuously underperform the market. While the S&P 500 has return of over 15%, the QPF has embarrassing returns of only 4%.
If I sit on my hands and patiently wait, I can see my half million turn into a million. See my million turn into two million, and on and on. The hardest part of the equation is to sit down and do nothing.
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