Investing Master Class

Lesson 2:

Investing 101

Investing Master Class

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Overview

Learn the difference between the two main investing philosophies, active and passive investing. We'll teach you how to avoid the biggest rookie mistakes that new investors make. And, we'll bust the myth of genius stock pickers who claim to outperform the market.

Full transcript

Hi, I'm here to talk to you about investing. Are you walking away? Of course you are.

This series teaches you smart investing. But what should you invest in? And how? And when?

Well, the ins and outs can look really complicated, but the whole thing's actually pretty simple. And we'll prove it, or I'll prove it, over the course of the next 43 minutes and 17 seconds, 16, 15, 14.

Passive vs. active investing

Let's start off by helping you avoid maybe the most common and important mistake: a lot of people think investing is about picking stocks. Hey, this is gonna be the next Amazon! Yo, my rich uncle says this is the next hot stock! We should buy it too.

Yeah, a lot of people invest that way. It's called active investing. But stock picking is not something for the faint of heart, or the inexperienced. Actually, experience is no guarantee of success either. In fact, there's a whole industry out there that charges people tons of money to pick stocks for them, and if you think that's the best way to win at investing, there's a monkey we want you to meet.

IMC-Inline-Lesson-02-01-Monkey

In 1973, the Princeton University Professor of Economics Burton Malkiel claimed that a blindfolded monkey throwing darts at a list of stock symbols could rival the careful selections of experts. Historically, dart throwing monkeys haven't just rivalled the experts. They've actually done much better.

But, don't let the fact that a monkey could do better discourage you. Research shows that passive investing, the practice of investing in big chunks of the stock market and holding, beats the active traders who pick individual stocks 84% of the time. Did you get that? Pretty much all of the time, it's a bad idea to pick stocks yourself or pay someone to do it for you.

Invest for the long term not the short term

Over the past 130 years, the markets have continued to rise despite depressions, world wars, tech bubbles, and real estate crashes. Guess what strategy most investors would've been best off sticking with? You guessed it, the boring old passive strategy of buy and hold. Which means, you buy stocks and hold them for the long term regardless of the ups and downs of the stock market. It's best to think long term and not dance in and out by trying to predict stock winners.

IMC-Inline-Lesson-02-02-TakeTheLongView

Alrighty, now that we've dodged that bullet. You now know not to spend your life savings picking stocks. But there's so much more I have to teach you about smart investing. Come on, Nick, keep teaching!