In the stock market you don't "always win"

A common phrase among many investors is that "you always win in the stock market." This statement is far from the truth. No one can predict the price of a stock in the next second, let alone what will happen in the long term. However, there are several factors to consider when analyzing this idea.

First of all, you don't always win. A recent example is Nokia. After years of downward trend, its price now seems to be rising again. But the reality is that about fifteen years ago the stock was worth around 30 euros, and today it's worth around 5. This represents a drop of approximately 80%. For those who bought at 30 euros to recover their investment, the price would have to increase by 600% or more, something that is almost impossible.

Secondly, the time horizon must be considered. Data shows that, over the long term (a series of about ten years), European and American stock markets offer an average annual return of 8%. However, for example, in 2020—coinciding with the COVID crisis—there was a 25% drop. Therefore, someone who had bought stocks at that time might ask themselves: "Where's my 8% annual return?" In fact, most novice investors tend to lose money in the short term by letting their emotions get the better of them.

Finally, the key is diversification. In the market, we find stocks with different beta values, an indicator that measures a stock's volatility and, therefore, its ability to generate greater gains (or losses) than the index as a whole, such as the Ibex 35. If we choose aggressive, more volatile stocks, our portfolio can exceed 8% annually in good years, but will also fall much more in bad years. Selecting companies from diverse sectors and geographies is essential. In fact, the best recommendation is to invest directly in a complete index (such as the Ibex 35) and invest in all 35 companies that comprise it.