Become a stock market master

Get in the right mindset before you tie up your cash

Over the years, I’ve been very fortunate to have met people who showed me how to get ahead financially.

I’m very grateful for this and I think that’s why I wrote The Money Plan – to share some of the secrets they taught me, in order to help as many people as possible.

This week, I read a great blog by one of the people who helped me as he celebrated 40 years in business.

David Booth, the founder of Dimensional Fund Advisers, is a genius in the investment world, so I wanted to share some of his thoughts, and mine, so you too can benefit from his wisdom.

Gambling is not investing

This is such an important message to take on board. Gambling is a shortterm bet – if you treat the stock market and investing like a casino, picking your favourite share and trying to “buy low, sell high” then you may very well end up sorry.

If you bet on the stock market in this way, you need to be right twice: when you buy and when you sell.

Investing, on the other hand, is a long-term game. You buy, sit tight and go off to enjoy your life. The sooner you start doing it, the luckier you could become.

Investing is a long-term game. You are rewarded for the risks you take

Embrace uncertainty

The stock market does not go up in a straight line, which is what worries many people about investing. But as investors, we are rewarded for the risk we take in the stock market.

Over the last 100 years, the world stock market has returned around 10% on average per year, but it is hardly ever close to 10% in any given year.

Some years it’s far higher and others it’s negative. We cannot make this uncertainty disappear, so we should embrace it by buying into the world stock market and holding on for decades.

Tune out the noise

If an investment sounds too good to be true, it probably is. Television experts offering tips, my neighbour’s next sure thing… these are entertainment, not investments, and it’s important to train yourself to think that way.

Fads come and go but the world stock market is still here – and you can do very well without having any insider secrets or being in the know.

While sometimes the world stock market is unpredictable and may seem chaotic at times, there is a form of order which rewards the longterm buyer.

What should I do?

I’m often asked: “If what you say is true, why do so many people try to beat the market? Why not just accept the market return and leave it?”

Well, because we all want to think we are better than that, that we can beat the market – just like we think we’re a better than average driver, lover or employee.

You would do very well by buying a world index fund and leaving it for as many years (not months) as you can. Your future self will thank you for it.

To learn more about successful investing, search for The Money Planner podcast.