The stock market is not a casino.
That's at least partly because casinos actually have fixed odds. When you play a single number in roulette, for example, your odds of winning are 37-1. If you play blackjack using basic strategy, you should over time lose only about 51% of the time.
Even slot machines have rules governing their payouts. You may not win, but Las Vegas slot machines actually return more than 90% of the money that's bet to players, It's a system where the house has an advantage, but the rules in place protect players (to a point).
The stock market has no such rules. Yes, companies are regulated by the Securities and Exchange Commission, but that has nothing to do with how stocks perform. We've all seen questionable stocks go on incredible runs for reasons that have nothing to do with business (Hertz (HTZ) and Gamestop (GME) come to mind). And we've seen Apple (AAPL) shares fall after a stellar earnings report.
No laws or rules require the stock market to behave rationally. In a casino, I may not win, but someone has to. It may not feel that way, but casinos are governed by math.
The stock market can be ruled by emotion and often -- at least in the short term -- what happens has little or no connection to actual results.
That does not mean you can't make money or even get rich -- and there's one simple, and painful, way to make that happen.
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Warren Buffett Has Your Investing Answers
As an avid casino player, I'm willing to play blackjack all night at $10 a hand to win (or lose) a few hundred dollars. That "investment" earns free hotel rooms, meals, and sometimes more. It's not as exciting to play blackjack properly or play video poker defensively -- where your goal is playing more, not winning, since casino rewards are based on money cycling through, not wins or losses -- as it is to play slots or roulette, but the payoff is better.
The stock market works the same way. It's really exciting to buy a meme stock you heard about on social media and make a bunch of money, but that's not normally what happens. The reality is that chasing tickers based on rumors, guesses at what the next big thing will be, or because someone you don't know said to buy it rarely works out.
The secret to getting rich -- and it's really boring -- is to buy shares in good companies and hold onto them for a long time. Stocks like Apple might drop after it reports earnings, even if the earnings are strong, but over time good companies almost always rise.
Here's How You Identify Good Stocks
Nobody gets the stock market right all, or even most of, the time. Anyone who tells you that they do or that they have a fail-safe system is a con man.
Everyone makes bad picks, and sometimes good companies fall off track. At one point, for example, you could make a case that Peloton (PTON) had built an Apple-like luxury brand that had pricing power and word-of-mouth marketing to drive sales.
Some people likely saw where the company would eventually go wrong and some may believe it will make a comeback, but the original buying thesis seems to have broken.
Even some excellent investments over the past decade -- Walmart (WMT), Target (TGT), Chipotle (CMG), and Microsoft (MSFT), to name a few -- have faced crises that have sent their shares down 40% or more.
Over, time, however, strong companies with good leadership, long-term plans, and the ability to course-correct make for good investments.
The problem, such as it is, is that getting huge returns takes years. That means buying good companies, patiently holding onto them, and not worrying when they stumble.
That's a boring strategy, but it's a great one to start during a down market.
Right now you can get shares in a lot of very good companies at excellent starting prices. You won't hit a jackpot, so to speak, and even if you do, you should probably just keep holding. But over years, even decades, you will make money. History says.
