Why Do People Invest in the Stock Market?

We’re here today to talk about why people invest in the stock market. Well, have you been to the bank recently? And see what your bank’s account, savings account pay is zero. Have you looked at treasure bills recently? It’s zero, and some other place those are negative. How you looked at longer term bonds pay, maybe 2%, commodity oh boy they’re going down quick, real estate forget it, it’s been half of where it was a couple of years ago and really outlived stock. Over the longer term, the rates of growth and earnings in profits, in the standard opposed 500 has been 8% a year, it doesn’t mean that it doesn’t go up 8% every year, this year in fact it probably walked, but nonetheless, over 70 years that’s been a number. As a result , over the next 10 years, if you buy a company at an average, earnings and cash both, because both are important if they were to increase at an 8% clip.

The underlined value that business will double, well you might say that 8% doesn’t mean a whole lot, you find me something that’s better, you find me something that’s better over the last 70 years, and you’re probably helpless to do it. Well, why else would people invest in stock? Well, you know there’s an opportunity to make more money than that certainly, for companies that are growing faster. I’m going to throw some names now, I’m not making recommendations to purchase this because these are higher risk investments that have much higher rates of growth, but for instance Google, where you say, a very large company which is historically been growing at 40-50% range, that’s an example.

Um, can they do that forever, and ever, and ever? No! They can’t, eventually they’re going to grow at 8% a year, or 6, or 10, or whatever it might be, but for now they’re in the 40-50% category. You’ve been very careful, you’re bound to suffer more volatility in a more pyramid of growth than 8, anyway we’re all a little bit greedy, 8% sounds great, it’s been the highest rate of return of any investment category that we’ve seen over the last 70 years of it with lots of volatility, and that is why people buy stock.