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With an average growth of 6%, that's how it gets there
Yeah, but where does the 6% come from? Why is a bigger more profitable company worth more than a smaller less profitable company? How does a hundred years plus of track record guarantee the future? What if Iran nukes Detroit?
i suggest you start to educate yourself first since anything we explain you don 't get. go to the book store and there are loads of books to give you he basics .
This is what I'm confused on, because you are saying that if the Economy is growing and the companies I'm investing in are growing, the value of the Stock Prices will grow. But from the reading and studying I have done up on Stocks, I am being told it's not directly tied to the Economy and that Stock Price Appreciation is based on variables that are unrelated. Can you direct me to more information on how you concluded that Stock Prices are tied to Economic Growth and Growth of the companies I'm investing in?
I think the problem is that you're confusing the price of an individual company's stock over time with the price of a mutual fund or ETF share over time.
An individual company's stock price is tied to the economy, in that if the economy as a whole isn't growing the company probably isn't either. But for an individual company, there are indeed a lot of other factors that are in play as well: the effectiveness of the management team, the productivity of that company's workforce, their effectiveness at marketing their product, whether the demand for what that company makes is rising or falling (this can be independent of the overall economy - if the economy overall is growing but the particular company in question is making something like VHS tapes, obviously that company's future growth potential isn't looking good).
But mutual funds and ETFs aren't investing in a single company; they're investing in hundreds or thousands, and at that point the law of averages kicks in. Most companies are average. The sinking ships are offset by the rising stars. What's left is what all the companies share, namely the overall economy (or economic sector, if we're looking at a sector fund) they are operating in. So for mutual funds and ETFs, the dominant factor affecting their price over time is the growth of the economy over time - everything else averages out in the wash.
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I'm not losing any money, I might be losing an opportunity to make a better rate, but I'm not losing any money just because my rate is at 2.5% for example and there's rates going for 3%.
Oh, but you are indeed losing money! And this is HUGELY IMPORTANT to understand!
You haven't lost principle, that's true. But your gains didn't keep up with the gains of those who made 4% instead of 3%, so relative to them you have lost 1% of your purchasing power. Now over the span of a year that may not matter much - but compounded over many years, it definitely does. In the very long run, it can bankrupt you.
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I 100% agree with you. All I'm trying to determine is what makes a Stock Price Appreciation, is it the growth of the economy and the companies/sectors I hold stock in? Is it CNBC praising the S&P? What makes it go down? Is it Jim Cramer saying XYZ CEO svcks? Is it other Traders that don't like XYZ CEO because he cheated on his wife and called his wife a "pig", thus they don't to hold his stock anymore? These are the questions I still have.
And here Mathjak got it right: short-term swings are driven by a mixture of fear and greed. People get scared and sell, or get greedy and buy. (Just like in real estate: why did house prices fall here in Omaha by 30% in 2007-2008 when absolutely nothing in the Omaha real estate scene had changed significantly for either better or worse? Fear, nothing else, explains that price drop. Banks were afraid to lend to qualified buyers, and buyers were afraid to purchase. When the fear went away, the prices rebounded to their original levels.)
But long-term price changes are driven by the fundamentals of the company and the market in which it is operating. Canny investors (especially the big-time ones) are paying close attention to those things, and they DON'T let either fear or greed influence their buy/sell decisions. So over time companies that are growing faster than the overall economy (like a certain fruit company in the early 2000s) see their stock prices rise (and the bigger their growth, the more their share increase in value), ones that are merely keeping up with the economy see stable stock prices relative to the overall economy (they grow only enough to offset inflation), and unsuccessful companies lose value.
In the end, no amount of chicanery could keep Enron afloat, because their numbers simply didn't add up, and eventually the smart investors saw that and got out. And in the end, Apple didn't rise from near bankruptcy to the most valuable company in the world because Steve Jobs really did have a Reality Distortion Field; the increase came because they really were making ground-breaking, insanely great products that a huge number of people wanted to buy.
In the long run, which is what as an investor you should be interested in, it is market fundamentals which set stock prices. It's not a casino, not at all, unless you're playing at day trading.
Yeah, but where does the 6% come from? Why is a bigger more profitable company worth more than a smaller less profitable company? How does a hundred years plus of track record guarantee the future? What if Iran nukes Detroit?
Nothing is guaranteed.
Also the answer to the bolded question should be rather obvious
Yes, that did help and thank you for taking the time to at least discuss this with me. Let me think over everything that's been said and I will be back to update here in this thread shortly.
But if what you are telling me is indeed true, that if the Economy is growing and the Companies I invested in are growing, profitable and meeting great demands, if these two things will mean that over time my Stock Fund will increase, then I can "understand" that. When people are trading based on fear or greed, what if they have bigger impacts on these companies than they are "supposed" to have? What if the period of time when their effects on the companies noted, are extended longer than usual?
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