No one has ever accused the stock market of being simple and easy-to-understand – if that were the case, you wouldn’t need apps like ours to help you spot investing opportunities.
If you haven’t ever really thought about it, there are a lot of complex about the stock market. Today, let’s give our hard-working algorithms a pat on the back by taking a look at the difficult things about the stock market.
1. Past Results do not indicate future returns.
This is a phase you will be very familiar with if you do any investing, because this is the most important stock market disclaimer. The past does not reflect the future. Our apps use pattern recognition to make smart estimations about the future, but when it comes to the stock market, there are no guarantees. Some say investing is similar to gambling, but of course when it comes to investing you have the opportunity do a lot more research before taking informed action. Making things worse is that on a day-to-day basis the stock market is a volatile market. This means that if you buy and sell stocks often, it is very difficult to make a profit as an average investor. Typical investors only see profits over the long haul (10+ years) of the market.
2. Trading stocks is all but a digital currency now.
These days, pretty much everything with stocks is done digitally – and while this may seem to make things easier, not difficult, it does not remove the need for everyone involved to charge a fee, and it introduces the opportunity for new scams – this was what the book/movie Flash Boys was all about. Digital investing also makes it easy to forget that buying a stock is a piece of ownership into a company; the same is true if you’re buying into a mutual fund. As an owner, you may be asked to participate in decision making, but also, do you feel morally or socially aligned with your investments?
3. Stock investing decisions require evaluating multiple variables.
Even in our simplified apps such as Investor, there are still a number of data points listed for every stock. Why? You can’t make a smart stock decision by looking at just a single variable. For example, the stock price does not have any reflection on if the stock is a good buy for long term value or not. In fact, a company can be profitable and financially abundant but its stock might not also be doing well – stock price is determined by a number of factors, including factors that have nothing to do with the company, such as the overall mood of the market or impacts from across the sector and industry. All the data points about a stock must come together to reflect future value (which is part of what algorithms like ours are helping with).
What do you think is the most ‘difficult’ thing about the stock market?