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Why you must think long-term to get ahead on the stock market

by , 28 July 2015

You invest on the stock market to build your wealth.

But if you focus too much on the daily goings on, you can end up fighting with the market rather than making profits from it.

One of the key investment principles you have to bear in mind is that the market rises over time.

Read on to find out how you can make the most of this investment principle and make money from it…

You have to invest for the long-term

If you look at the past performance of the stock market, it has an extremely strong upside bias over time.

There are many reasons for it. The main reason is the supply of money chasing stocks increases. The number of stocks doesn’t increase at the same rate, far from it. And this means that prices rise, Keith Fitz-Gerald in Total Wealth explains.

Think about it. If a supermarket has 1,000 eggs and there’s only one shopper, the price of the eggs will be low. But if there were 1,000 people wanting the last egg, its price would rise dramatically.

It all comes down to the workings of capital markets. Capital ties into the growth of the companies listed on the stock market. This growth translates into revenue, revenue into earnings, and these earnings result in higher share prices.

And this is why it’s so important to take a long-term view when you invest on the stock market.

How to handle bear markets

When a bear market comes along, it’s a short-term event. It doesn’t change what’s going to happen over the long-term.

For example, the dot com bubble bursting and more recently the financial crisis in 2008 are blips on the long-term stock market horizon.

Don’t let corrections and even crashes scare you away from investing on the stock market. You should use them to your advantage. They will highlight ideal buying opportunities.

By buying when the market is down, you’re buying low. Once the market recovers you can sell at a higher price, pocketing a nice profit along the way.

So there you have it. Why you must think long-term to get ahead on the stock market.

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Why you must think long-term to get ahead on the stock market
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