Why the Stock Market Goes Up

The Stock Market is the simplest path to grow your wealth.

For beginners, Stocks can be scary, because they don't teach this in school.

But Stocks don't have to be scary.

Here's what you need to know about Why the Stock Market Goes Up: pic.twitter.com/Gc49m99sac

— Clint Murphy (@IAmClintMurphy) June 27, 2023

• Why Care

The Stock Market is the greatest wealth creation machine of all time.

The Stock Market in the United States has returned an annualized return of about 10% per year for the last 130 plus years.

I don't know about you, but that's pretty consistent.

— Clint Murphy (@IAmClintMurphy) June 27, 2023

• What is a Stock

Corporations were invented hundreds of years ago.

They're legal entities separate from their owners and their shareholders own them.

They can raise money by selling stock, also known as shares or equity.

A stock, then, is partial ownership of the business.

— Clint Murphy (@IAmClintMurphy) June 27, 2023

• Why do Stocks Have Value

Stocks have value for two reasons:

They make annual payments to the shareholders in the form of dividends.

They retain their profits inside the business and the shareholders are entitled to the equity.

— Clint Murphy (@IAmClintMurphy) June 27, 2023

• What is a Stock Market

In 1792, some dudes got together in New York on "Wall Street" to exchange shares with each other.

That's it. Simple. A stock market or "exchange" is a place where people can buy or sell shares of public companies.

— Clint Murphy (@IAmClintMurphy) June 27, 2023

• What is a Public Company

When a Company wants to grow, here's some options:

• Borrow money
• Founders raise money
• Founders add new investors
• Founders take the company public

When you take the company Public (IPO), you sell shares to public investors on an Exchange.

— Clint Murphy (@IAmClintMurphy) June 27, 2023

• A Stock's Value

Simply put, the value of a Company is based on two things:

• The Company's Assets less its Liabilities
• Our belief in the value of its future earnings

You are paying for the Equity + the Expected Future Profits.

— Clint Murphy (@IAmClintMurphy) June 27, 2023

• Share Price Volatility

Benjamin Graham said it best,

In the short run, the market is like a voting machine - tallying up which firms are popular and unpopular.

But, in the long run, the market is like a weighting machine - assessing the substance of a company.

— Clint Murphy (@IAmClintMurphy) June 27, 2023

• Why Stocks Go UP

Over the long-term, stocks go up and to the right for these seven reasons:

• Inflation
• Innovation
• Productivity
• Acquisitions
• Stock buybacks
• Population growth
• International expansion

With these forces in place, stocks should keep going up.

— Clint Murphy (@IAmClintMurphy) June 27, 2023

• Keep it Simple

You don't need a financial advisor.

If you have one, make sure you understand how they get paid.

Most active money managers underperform the stock market in the fullness of time.

Keep it simple and buy yourself low fee index funds.

— Clint Murphy (@IAmClintMurphy) June 27, 2023