Ride the Dow Jones Rollercoaster to Riches
We Fools like to pick stocks and beat the market. In particular, we like to find winners for the very long term. As investing guru Warren Buffett once said, it's not about making money in the short-term market: "I buy on the assumption that they could close the market the next day and not reopen it for five years."
When Foolish founder Dave Gardner started his Stock Advisor portfolio in 2002, two of his first stock picks were Marvel and Amazon.com . Eleven years later, Marvel has joined the Walt Disney empire, and Dave Gardner hung on to his converted Marvel shares. Both stocks still remain active Stock Advisor recommendations, having beaten the market by 3,300% and 2,200%, respectively.
But you actually don't have to be a fantastic stock-picker to get rich. Nobody gets every investment right, all the time. Four of Dave's first 10 Stock Advisor selections were closed out below overall market returns for the comparable periods, and half of these actually lost money overall.
And it's not like Disney and Amazon were no-brainers in 2002. If they were, they wouldn't have been so gosh-darn cheap and primed for massive returns.
Disney assembled a portfolio of breathtakingly successful media properties by acquiring Marvel and Pixar, and Dave Gardner saw the long-term promise of bundling Marvel's assets with Disney's fully established media empire. But that was hardly obvious to every investor in 2002, when Marvel was just a small-cap wannabe mired in debt and perhaps betting the farm on a short-term superhero fad.
As for Amazon, the online retailer was finally on track to deliver its first annual profit. But the stock always looked expensive, and Dave started his Amazon bet at 75 times forward earnings estimates. That's Nosebleed City. He had actually owned Amazon since 1997, impressed by the company's customer satisfaction focus and CEO Jeff Bezos' entrepreneurial genius. But you know that Wall Street's gutters are littered with the discarded husks of geniuses and their unique business models. And may I remind you that Amazon was a risky small cap in 2002, with just a $3 billion market cap?
So stock-picking can be extremely rewarding, but you have to know what you're doing -- and accept that some of your surefire bets will go astray. There ain't no such thing as a free lunch.
On that note, let me remind you that the most important thing about investing is that you actually have to invest. It's easy to build wealth in the market without ever aspiring to win the stock-picking game. You just have to get into the market somehow. Here's one of the easiest routes.
The Dow Jones market barometer may not give you 2,000% gains in 11 years, like Amazon or Marvel/Disney did, but the inexorable long-term rise of this index has made plenty of millionaires in the long term. All you need is a Dow-tracker index fund or a simple ETF such as the SPDR Diamonds .
Here's why you should ignore the short-term noise and focus on the Dow's extraordinary long-term resilience:
OK, cool. But I still want to beat the Dow!
Dow Jones index trackers provide a safe long-term play, but many Fools still prefer to beat the market outright. That's OK, too -- we're here to help!
The market has stormed to huge gains across 2013, leaving investors on the sidelines burned. However, opportunistic investors can still find huge winners. The Motley Fool's chief investment officer has just hand-picked one such opportunity in our new report: "The Motley Fool's Top Stock for 2014." To find out which stock it is and read our in-depth report, simply click here. It's free!
The article Ride the Dow Jones Rollercoaster to Riches originally appeared on Fool.com.Fool contributor Anders Bylund has no position in any stocks mentioned. Check out Anders' bio and holdings or follow him on Twitter, LinkedIn, and Google+. The Motley Fool recommends Amazon.com and Walt Disney. The Motley Fool owns shares of Amazon.com and Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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