Taking stock of the market: A primer on why stocks matter

By 2017, Apple will be giving back about $200B to its shareholders. Don’t worry, they can afford it. After their recently announced 2015 Q2 earnings, they can afford just about anything. Though nothing in this article should be taken as stock advice, it is easy to see why owning stocks matter when the stock in question is AAPL.

iStock_000020144943_SmallThere is so much mystery and misinformation about owning stocks, it is easy to see why people would shy away from them. Here is a bit of information that might help you make a more informed decision:

Invest, don’t gamble

The casual observer looks at the stock market and sees a huge gamble. While it is true that many day traders treat stocks like poker chips, they are doing it wrong, even when they win. Investment involves research. It is based on a thoughtful leveraging of knowledge and insight into companies and their prospects. Gambling is about hoping for the best when there is insufficient information for an informed decision.

Modern stock analysis software can take much of the guesswork out of investment. You can go with your gut. Or you can go with a tool that assists you in trend continuation trades used to discover the consistent portion of a trending market. Invest with knowledge. Gamble with luck. And try not to get the two confused.

Win the long game

Not everyone wants to retire. But if you happen to be one who does, then you are going to need a long-term investment plan that will pay off in the future. Stocks can be played like a fast-paced game for thrill-seekers. But the real value of stocks is in the long game, and big payoff over time.

One need only observe the average stock market return since the turn of the 20th century. According to one such analysis:

The long-term, more than 100-year performance: Since 1900 (end-of-year 1899), through 2012, I estimate the average total return/year of the DJIA (Dow Jones Industrial Average)  was approximately 9.4%  — 4.8% in price appreciation, plus approx 4.6% in dividends. (Some numbers may not add up due to rounding.)

Taking the long view, ups and downs are not as important as the overall trend. Even through the down markets, stocks have proven a solid, long term investment, outperforming other retirement schemes. Don’t just play the long game; win it with a solid stock strategy.

Global opportunity

One of the best reasons to work with stocks is that they provide global opportunity for growth. This globalisation helps to insulate from the irrationality of the U.S. market. U.S. Stocks only account for about a third of the total global market capitalisation. The BRIC nations (Brazil, Russia, India, China) and other developing markets provide strong growth opportunities. Residential construction, finance, and retail in the developing world can be key to a well balanced stock portfolio.

A stock is a certificate of ownership in a company. Buying a part of a company means that you are partly tying your fortunes to that company. It is not a game you play, but a business you enter. Do so with that in mind, and your investment future should be bright.