How To Beat The Stock Market In 2019

What's up you guys? It's Graham here.

So, I think it's undeniable that we've seen a lot of recent discussion lately about the current state of our economy, talking about this upcoming looming recession and what to do when the stock market drops in price. In fact, one of the most commented questions I get on the channel is something along the lines of "Should I be investing my money now, even though there's going to be a recession in the next year?"

So, let's go ahead and answer this question and discuss some of the ways that you can invest your money to come out profitable regardless of what happens with the markets. This is meant to be a video where if the stock market drops in price, you're gonna be okay and you're gonna make some money. And if it goes up in price, then obviously you're gonna be okay and you're gonna make some money.

And no, this is not a sketchy sales pitch for some like timeshare in Hawaii that you can rent out in your spare time for Mo. Instead, this entire video is just about the past performance of the stock market statistically, according to research. When is the best time to invest, and what has happened before and after every single stock market correction out there? So, none of this video is just opinion or going off with some sort of anecdotal experience. All of this is because of data, research, studies, and science. This is science; we're doing this for science!

And of course, as usual, videos like this take me significantly longer to make than all of my other videos just because of all the research involved. So, if you wouldn't mind destroying the living daylights out of the like button for the YouTube algorithm, that would be greatly appreciated.

So again, with that said, let's get into the video. First of all, let's get this out of the way. I think it's really important that none of us fear a recession or think that the stock market dropping in price is necessarily a bad thing. It's that I think it's so important to embrace this mentality whenever it does happen. You know, there's a saying out there that goes something like this: "Riches are made in recessions." And I have to say that could not be more true!

Like, any time the market drops in price, that just becomes an unbelievable opportunity to buy low and make money. And arguably, one of the biggest reasons why I did so well in real estate was because I got in as soon as prices started going downhill, as soon as prices started dropping, and as soon as things started getting really bad. As soon as people were getting out of the business, as soon as people were selling properties left and right, and as soon as prices began plummeting, is when I started buying in.

Because there was money to be made! So, from this perspective, we should absolutely view a price drop as an opportunity, not as this gut-wrenching feeling that your investment is losing its value. And that will be a very tough reality that many investors will have to face, especially if you're someone who's only been investing for the last five to seven years. All you've really been accustomed to is the market continually hitting all-time highs and consistently getting these five to twenty percent returns each and every year.

But this is not normal to happen consistently, and there will be years that you will end up losing money and have to plan accordingly if you want to come out ahead. Because here's the thing: when the stock market does go down in value, statistically, the best thing you could possibly do is to smash that like button if you haven't done that already! Just kidding. The real answer when it comes to this is that the best thing to do is absolutely nothing.

That's right; it's to do nothing. Studies have shown that market timing rarely ever works consistently, and that it's nearly impossible to predict when the market is going to drop in value and when it's going to skyrocket back up in value. And sure, some people might get lucky with timing the market here and there, but being able to do this long-term, accurately and consistently, is pretty much not going to happen.

And like I said, this is not just something that's in my opinion; this is something that's been studied very thoroughly. For example, the investing firm Charles Schwab—it's so hard for me to say Charles Schwab, by the way. You say that like five times and you can no longer say it anymore! Charles Schwab, Charles Schwab... it's hard to say!

Anyway, you know what I'm talking about here. They analyzed the investing data between five different groups of investors between 1993 and 2012, and this is what they found: the first type of investor invested $2,000 at the absolute lowest price point of each and every year. The second investor just invested $2,000 at the very beginning of each and every year. The third investor just invested an equal portion of the $2,000 each and every month throughout the entire year.

The fourth investor invested $2,000 at the absolute highest price of each and every year. And the fifth investor just didn't do anything and kept the money in cash, just waiting for a market crash. Now, it was found that obviously, the best from the entire group was the one that invested each and every year at the lowest possible price and at the end of this 20 years had a total investment of $87,004.

But now, the surprising result when it came to this was that the second investor, the one who invested $2,000 each and every year just at the very beginning, had a total investment return of $81,560. That's only $5,300 less than the investor who had literally perfect timing each and every year down to the exact day for 20 years!

Then, of course, we had the third investor who just invested an equal portion of that $2,000 each and every month, who didn't come too far off with a total investment return of $79,510. And even the fourth investor, who had the worst possible timing, who put in their money each and every year at the absolute market peak, had a total investment return of $72,487.

And then, of course, our cash investor who was waiting for the market to crash had the lowest overall return with a total investment value of $51,291. So, I think this is pretty clear! Even if you have perfect market timing down to the exact price, down to the exact day and exact hour, over 20 years, you're only going to come out ahead an extra 6.8 percent opposed to the person who just invests the money immediately from the very beginning.

And again, the chances of you being able to do that consistently down to the day every single year over 20 years, statistically, it's just not going to happen. And if you're not quite convinced on this, Charles Schwab—I still can't pronounce that!—analyzed 68 rolling 20-year time periods, dating all the way back to 1926.

And they found that in fifty-eight of the 68 time periods that were analyzed, the results were exactly the same. Perfect timing in the stock market always will come in first, but investing your money immediately as soon as you possibly can always tends to come in a very close second. Dollar-cost averaging then came in a very close third, and then so on.

And if you still don't believe me, the study also shows that investing your money immediately never came in last place in terms of your overall investment return when you look over a 20-year time period! Pretty much, we could see that it's more important to invest consistently and not sell than it is to try to time the market perfectly every single year over 20 years.

And speaking of people who think that they can time the market, I really caution you and recommend you to rethink this mentality! Because, you guessed it, we got another study. Brad Barber and Terrance Odean analyzed 66,000 households between the years of 1991 and 1996 and found that the investors who traded the most often earned an annual return of 11.4%, which sounds pretty good, by the way, until you consider that the stock markets returned an average of 17.9% during that same time period.

And the reason for the lack of performance was pretty obvious: number one, people are just bad at timing the market amidst some of the best buying opportunities by either selling too soon or buying in too late. And secondly, the investors buying and selling stocks within a short time period are often taxed at a much higher rate than the long-term investors. And this is something that absolutely needs to be taken into consideration.

And in fact, doesn't yet have you convinced against market timing? Then maybe this will: if you look at the Dow's worst 20-day performances, you'll see that the majority of the best single-day price increases tend to occur within roughly two weeks of its worst single-day declines.

This means that if you just happen to sell as the investment price declines, you could very well just happen to miss out on some of the most profitable trading days out there. And, of course, as usual, here's the data to support that: over the last 15 years, if you just kept your money invested in the S&P 500 and didn't do a single thing, you would have a 7.7% return.

But if you sell too early and just happen to miss the 10 most profitable trading days, your return drops to an abysmal 2.96%. And if you just happen to miss the most profitable 30 trading days, your return suddenly becomes negative. And all of this occurred during a time where we saw the collapse of Lehman Brothers, the USA's downgraded credit rating, and all the way through Brexit.

So with all that data and research in mind, here's how you could beat the stock market in 2019, regardless of what happens: it's just this: don't time the market and don't sell when things drop in price. The only method which is historically proven to actually work over the last 100 years is just to invest as soon as you have the money, invest consistently, hold that for at least 20 years, and don't sell any time it drops in value.

That's it! That is how simple investing really is. Regardless of all of the world-ending, apocalyptic clickbait headlines that you see swirling around out there, just ignore all of that. The advice to come out ahead is really as simple as just doing this. And even though it might feel gut-wrenching to have your investment lose value and to lose money on paper, every market decline is just an opportunity to buy cheaper today than you could the day before.

This is why I'd never understood why people are so fearful of the stock market dropping in price or thinking it's some apocalyptic scenario that we'll never be able to recover from. Because history has always shown us that this is not the case, time and time again.

In fact, I always think there's going to be a time why you should not be investing and why this time is going to be different. If we just look back at our history, you're always going to see something that can impact stock market returns. But whether or not we actually see a negative yield that year is something completely unpredictable and this continues throughout the last 100 years.

So us in 2019 is nothing new. The context might be a little bit different, but the results will pretty much be in line with history. You'll see plenty of times when the market could have gone down, but before a 17% drop in prices, the market goes up in price 50%.

So anyone just waiting around for the market to drop in price would have to wait not only a very long time, but they would then be buying in at a higher price and missing out on all that profit from the very beginning. And despite all of that, if you had just invested $10,000 back in the stock market 35 years ago, it would be worth over fifteen hundred percent more today. Or in other words, your $10,000 investment would be worth $156,000 in today's money when adjusted for inflation.

That is despite everything that has happened over the last thirty-five years that could have seen a stock market decline. So, if you want to beat the stock market in 2019, according to research, studies, data, and statistics, all you got to do is invest immediately, invest long-term, and just hold it. That's all there is to it!

And if the markets do go down in the short term, just have faith that this is normal, that this has happened in the past, and if anything, it's just an opportunity for you to buy the same thing while it's on sale at a cheaper price. Anytime you see the stock market drop, it just means that low prices mean a very good buying opportunity, not a time for panicking.

All of that is really just a part of a normal market cycle that has been going on for longer than pretty much all of us have been alive. And it's just something that we need to accept and embrace. So with that said, you guys, thank you so much for watching; I really appreciate it.

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So, Ken, thank you again for watching and until next time.