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Does Investing = Gambling? The TRUTH - YouTube
Channel: Learn to Invest - Investors Grow
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hi i'm jimmy in this video we're going
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to answer the age-old question
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is investing gambling now since we are
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in fact a learn to invest
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channel you might guess that our answer
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is
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obviously going to be no of course it's
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not gambling
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but before we jump to that conclusion i
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actually think that the real answer is a
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bit more
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complex than that a bit more nuanced and
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i'm going to try to back up my opinion
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with some historical facts okay so let's
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jump right in
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so he's investing gambling well first i
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really think we need to define gambling
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and when i googled the definition of
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gambling well here's what they gave me
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the first one two parts the first part
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was that
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it is playing a game of chance for money
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the next one
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was to take risky action in the hope of
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achieving a desired result
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and i'm not sure that that second one is
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terribly helpful
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since uh risky action could almost be
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anything is flying in an airplane a
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risky action is that gambling
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or is driving a car or is crossing the
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street a risky
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action we are in fact taking a chance
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to achieve a desired result and if
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that's the definition of gambling well
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then pretty much
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everything would fall in that so is
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investing the same as playing a game of
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chance
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for money well at first glance i could
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actually see how
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somebody might jump to this conclusion
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and
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i guess we could really gamble in the
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stock market or
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invest in the stock market i guess you
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could do both or either or so i think it
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would be a bit irresponsible to say
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absolutely not putting a hard-earned
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money into the stock market
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is not gambling i think that's a bit
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irrational i think a more proper way to
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present this
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would be to pose a few questions around
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investing
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first what is the goal of us investing
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and second
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how long are we investing for i think
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the time one is important because
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let's say the date let's take day
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traders
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the vast majority of day traders cannot
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consistently make a living
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being a day trader for any significant
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period of time
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because trying to predict what will
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happen in the next minute
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or five minutes or even the next day in
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the stock market is a very very
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difficult thing to do
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which by its definition would mean that
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there's a low probability that we would
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get that accurate
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but the longer our investment horizon
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becomes the further we get
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on this scale well the more that becomes
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the higher the probability that that
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becomes less like gambling so obviously
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time is important
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and then the other question is what is
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our investment goal
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well personally i once had a friend come
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to me
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and they had just come into some money
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they got like 10 000 or something
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some amount along those lines and he
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said that he wanted to invest it
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i said okay cool what's the long-term
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goal with the money he went on to
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explain that he needed to turn
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the ten thousand dollars into i believe
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it was seventy five
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thousand dollars within a year needless
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to say i was a bit surprised by this
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and i went on to explain to him that it
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couldn't be done and
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he said that he knew it could be done
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and i explained that
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technically yes it can be done but only
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if you're willing to gamble
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in fact our odds are probably better to
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go to a casino
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and pick a few roulette numbers and hope
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we hit on that
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than trying to turn around such an
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enormous return
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in such a short period of time trying to
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return 750
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in just a year was simply unreasonable
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so unreasonable expectations
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if you need to achieve those
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unreasonable returns it is more like
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gambling than if you
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go for let's say average returns or
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reasonable returns
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well then he tried to convince me that
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we could in fact achieve those returns
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using stock options
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and once again revisiting our example
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from before
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about is crossing the street uh gambling
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well it's crossing the street is not
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gambling if we do it smart
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sure crazy things can always happen and
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there could always be an accident
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but the majority of the time crossing
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the street is not in fact gambling
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but trying to use stock options to make
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750
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in a short period of time is like trying
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to cross a 10 lane
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highway during maximum traffic time and
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if we knew as much about stock options
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as my friend knew at that time well this
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would be like trying to cross
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the very same highway at the very same
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time but this time do it blindfolded
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sure we might make it across but why try
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it all
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especially when long-term investing is
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so so much
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safer so before we shift over to some
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facts to consider
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before jumping into the assumption that
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investing and gambling are the same
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thing
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i do agree that putting our money into
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the stock market
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can be risky or even gambling if we are
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after crazy high returns
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or a short-term investing horizon it's
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deadly if you try to combine both
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the longer we're willing to let our
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money work for us well the safer
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the investment becomes the less it
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becomes like a gamble and more it
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becomes like an
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investment let me illustrate what i mean
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by this from the safety side of it
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so i was able to pull down the total
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return of the s p 500
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going back to 1928. so this 37.9
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return well this was from the start of
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1928
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all the way through to the end of 1928
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and clearly that's a positive return
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and then 1929 that was the start of the
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great depression
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well that was a negative year and that
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negative year was followed up with a few
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more negative years since then
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so if we were to scroll through all of
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these years there were 93 years
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during our time period including 2020 so
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not up to the end of 2020 but
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close well out of those 93 years the
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stock market the s p 500
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shared a positive return 73 of the time
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so clearly this means that investing for
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a year
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is a lot better than investing for a
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short period of time
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since in theory we would make money 73
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of the time
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but what if we would go longer what if
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we would invest for five years
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so basically what i did here is i
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grouped it together
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every five years and then we pushed it
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forward a year and then again and again
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again
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all the way through until 2020. so using
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all of the five-year groups all the way
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through the five-year running period
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time periods there were 89 total time
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periods well
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out of those the five years was up
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each five year group they were up 87
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percent of the time
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so that looks better certainly better
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than it did
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for the one year holding period but now
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let's shift over to a 10-year holding
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period
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now we have 84 time periods to consider
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and over those time periods
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93 of the time there were positive
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returns
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posted and if we were to do this very
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same thing but this time hold it for 20
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years
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well over the 74 different time periods
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that we have a rolling 20-year period
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a hundred percent of the time in the
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past 93 years
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the stock market the s p 500 has posted
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a positive return
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so clearly just by looking at all of
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these numbers
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we can see that the longer we invest for
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the higher prof the higher the
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probability
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that we will in fact get a positive
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return and i think that this nicely sums
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up the question
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is investing gambling to me the simplest
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answer is
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well the longer you're willing to invest
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for assuming we're willing to perform
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about average which is in this case what
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the s p 500 did
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well the more likely that we are
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investing the longer we do it for
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then we are gambling now of course if we
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wanted to try to outperform the average
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if you wanted to try to
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outperform the stock market we could do
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that by picking
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individual stocks sort of warren buffett
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style who
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went out of his way not just to buy the
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stock market average he went out there
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to try to pick individual names now if
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you're curious i actually created a
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video where i go through
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eight steps to analyzing a stock i touch
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on everything
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from the documents we should be reading
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trying to come up with a fair value
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trying to identify when to get rid of a
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company when to
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figure out which companies are best to
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invest in so if you're curious perhaps
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that could be a good next video for you
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to watch
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i got a link right here i got a link in
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the description below and thank you so
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much for sticking with me all the way to
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the end of the video
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i really appreciate it thank you and
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i'll see in the next video
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