Dispel a myth

Before I go any further, I want to explain what the stock market really is, as simply and clearly as possible.

Most people have a wrong perception of the Stock Exchange and financial markets. Partly derived from the news they hear on TV or read in the newspapers (which is always negative) and partly from the experiences they hear of relatives and friends who have "played" in the stock market and lost money.

Unfortunately, lack of financial education leads these people to see stock markets as something negative, leading them to often compare investing to gambling. But the reality is very different. Investing in shares does not mean trying to improvise as traders, it actually requires knowledge of the markets and the dynamics that move them. Analyses of the balance sheets and of future strategies of the company must be made... these are all things that require competence and experience – skills that most people do not have.

You need to understand that buying a stock without the slightest knowledge of the stock market, simply because a friend has advised you to, perhaps someone who works in the bank or because you read on the internet how simple and easy it is to earn with stocks, has little chance of earning with trading. The fault does not lie with the stock market, that is ‘bad’ and ‘ugly’. The fault lies in the presumption of those who believed themselves smarter than others when instead they have only shown themselves to be silly and superficial.

For instance, this is a bit like the sea. The sea is not dangerous for those who are familiar with it; those who know how to behave in it and what to do and not to do in different situations. But for those who are careless and ignore even the most elementary rules of navigation, these people risk serious consequences, entirely of their own making.

For this reason, I do not recommend investing in individual stocks unless you have enough knowledge and experience of the stock market to make those types of investments. If you do have this knowledge, then you certainly don’t need to read this educational path of mine.

To understand how difficult it is to invest in individual stocks, I will tell you an anecdote.

Warren Buffett made a bet in 2009. He made a bet with some of the biggest and most prominent investment funds that they would not be able, over a ten-year period, to beat the performance of the S&P 500. In 2019, Buffet won the bet.

For this reason, my (and not only my) advice is to invest in financial instruments that replicate the performance of stock market indices. Without stress and high expenses, you will get a higher result than funds do (at least most of them) without you needing to have the same knowledge possessed by a fund manager.

"What if the stock market crashes? I still lose my money."

There have always been economic crises with collapses in stock markets, and there always will be. You must keep in mind the time frame of your investment: you are not trading, but investing your savings for 20, 30 or 50 years (this depends on you and, first of all, your age).

Those who, in January 2000, had invested in the American index S&P 500, today would have an increased capital of about 250% (or even a little more, if I remember correctly). And this is despite the bursting of the speculative bubble of internet stocks in 2000, the attack on the Twin Towers in 2001, the bankruptcy of Lehman Brothers in 2008 (with the S&P 500 that came to half its value) and the pandemic in 2020. Each time, the index has then recovered what was lost, reaching new highs (this includes after the crash of 1929).

The main problem of those who invest their savings, even correctly, is psychological. Faced with a collapse, they panic and perhaps give in to fear, closing their investments early and with a loss. This involves them ignoring the objective of their investment and its time perspective (duration).

I myself allocate a portion of my earnings from being a trader to the investment plan I have studied. I am able to see, before my eyes, the benefits I gain from it, even though there have been years when I saw my capital decrease.

So do not fear the stock market. If you respect it and use it in the right way, it will be a valuable ally to your financial growth.