Studying the history of the stock market can tell us a lot about how we should be trading if we want to maximize our profits - which is probably your goal of course (I know it is mine!).
However, all too often I see investors ignore history or not even bother to learn any history.
They'd rather follow what the latest greatest "stock guru" is saying on TV.
However, those that buck this trend (and ignore the gurus) and do take the time to learn from history are usually the ones that quietly make a small fortune in the stock market.
So what important lesson can we learn from studying the history of the stock market? The most important lesson I have learned is that small cap stocks do remarkably better than large cap stocks - and the mid caps beat the large caps too by the way.
Moreover, the largest of the large caps (the blue chips) seem to do worst of all! Yes, I realize this is probably counter-intuitive for you but this is NOT an opinion - it is quantitative verifiable FACT.
So, if I were buying one of those index funds that follow one of the popular indexes, I would personally steer clear of buying an index fund based on the highly touted S&P 500 which of course tracks the largest of the large cap stocks.
I really don't care what the experts are saying this week or later this year.
I have personally looked back at about 90 years of stock market history and I see that decade after decade these large caps don't perform as well as the small caps and mid caps - and the small caps very decisively win! If I were buying an index fund, knowing what I know today, I would find one that follows a small cap index.
Given the track record of the small caps, I would feel fairly comfortable that my investment would grow by a reasonable margin over the next 10-20 years.
However..
..
My goal is to MAXIMIZE my profits, not just do well.
I like to find investment opportunities that will give me explosive growth and then relatively quickly lock in my profits and move to the next one.
In this way, over the course of a year I can very easily make a 6 figure profit.
In fact, I have become "spoiled" by the techniques I use because I can so consistently make incredible amounts of money.
I completely ignore all the conventional wisdom - I do not diversify and I do not allocate any portion of my "portfolio" to index funds or large caps with the idea of hanging on to them for decades.
Why should I - and why should YOU? You can make far more over a very short amount of time if you concentrate on the smallest of the small caps - and you're wise about how you go about it.
Then...
just put that some of that profit away for the future.
No, before you ask, I am not a "day trader" and I do NOT treat stock trading like gambling - quite the opposite.
I am very particular about minimizing my risk and I like to invest in companies which have true value.
I really don't like the latest craze on the internet of finding over-hyped worthless penny stocks and then shorting them, i.
e.
intentionally looking for pump and dump scams in progress and trying to take advantage of the situation.
I think this is unethical as well as fool-hardy as I have seen too many "get rich quick" emotional types be taken in by this technique and then end up losing their entire investment.
Think about it this way...
this popular technique basically assumes you can out-smart the scamsters! Hmmm...
this is a really risky game in my opinion and no way to build a small fortune (even though some people do seem to make a bundle with it).
I do not want any part of that and I advise you to resist the temptation too (if you're so inclined) - it usually ends badly.
My very favorite way of making money with stocks is to buy stock picks from a few choice professionals who have the uncanny ability to find the very best penny stocks (those that trade under $5/share).
However, I'm not interested in the "empty" no value penny stock companies.
I want to trade penny stocks that have ACTUAL value (or alternately, they are well funded by venture capitalists and are headed toward profitability) and those that are literally ready to explode in price FOR GOOD REASON (not because they are being over-hyped in some pump and dump scam).
These are usually growth companies that are currently flying under the radar of the vast majority of investors.
I like to QUIETLY get in on these stocks BEFORE everyone else finds out about them and they escalate in price virtually over-night.
I have learned that trying to find these types of penny stocks myself, especially on a very consistent basis, is exceedingly difficult.
It takes REAL expertise and stocks that trade at the penny stock level can't always be analyzed using 100% traditional methods - AND there isn't a lot of news about these companies or an abundance of real experts holding you by the hand and telling you what stocks to research.
It is MUCH easier to find a penny stock pick service that can send you these types of profitable picks than actually finding the cream of the crop penny stocks yourself.
So, that's what I do.
I have become quite good at finding penny stock pick services that outperform all the rest.
I get the picks.
I test them and then I keep only the best of the best - the cream of the crop.
Once I find a really good and consistent source of EXCEPTIONALLY good penny stocks, I'm very loyal to the source in my trades.