Learning is not only good for you, but it pays off financially, too. Census Bureau reported median earnings for households where the main earner had only a high school degree of $33,124 for those with a two-year associate degree, median earnings were $40,560 and for those with a four-year bachelor’s degree, median income was $54,340.
The first is to complete additional education and training. citizens can accumulate a large amount of wealth during their lifetimes, if they make two key choices. Trying to pick the stocks that will gain a great deal in the future is a risky and unlikely way to become rich. For the average investor who reads the newspaper business pages over a cup of coffee in the morning, the odds of doing better than full-time professionals is not very good at all. If we look back over time, it is typically true that half or two-thirds of the mutual funds that attempted to pick stocks which would rise more than the market average actually ended up performing worse than the market average. While some investment advisers are better than average in any given year, and some even succeed for a number of years in a row, the majority of financial investors do not outguess the market. If stocks follow a random walk, then not even financial professionals will be able to choose those that will beat the average consistently. “With a trend” means that over time, the upward steps tend to be larger than the downward steps, so stocks do gradually climb. Because stock prices will shift in response to unpredictable future news, these prices will tend to follow what mathematicians call a “random walk with a trend.” The “random walk” part means that, on any given day, stock prices are just as likely to rise as to fall. The fundamental problem with predicting future stock winners is that, by definition, no one can predict the future news that alters expectations about profits. Brigades of stock market analysts and individual investors are carrying out such research 24 hours a day. Instead, you must find a company that analysts widely believe at present to have poor prospects, but that will actually turn out to be a shining star. Thus, what matters for predicting whether the stock price of a company will do well is not whether the company will actually earn profits in the future. If expectations determine stock price, then shifts in expectations will determine shifts in the stock price. The idea that stock prices are based on expectations about the future has a powerful and unexpected implication. Thus, in attempting to get rich in the stock market, it is no help to identify a company that is going to earn high profits if many other investors have already reached the same conclusion, because the stock price will already be high, based on the expected high level of future profits. The chief problem with attempting to buy stock in companies that will have higher prices in the future is that many other financial investors are trying to do the same thing. Why It Is Hard to Get Rich Quick: The Random Walk Theory Why is this path to riches not as easy as it sounds? This module first discusses the problems with picking stocks, and then discusses a more reliable but undeniably duller method of accumulating personal wealth. Those companies are the ones that will pay high dividends or whose stock price will climb in the future. Figure out what companies are going to grow and earn high profits in the future, or figure out what companies are going to become popular for everyone else to buy. Getting rich may seem straightforward enough. Evaluate how capital markets transform financial capital.Learning Objectives By the end of this section, you will be able to:
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