Playing the stock market can be fun, but it isn't a big money-maker for most investors. The casual investor can only expect small percentage profits from his small-to-medium sized investments, and he might find he is better off taking his money elsewhere for a higher return.
In the stock market the cash yields are low. If a person must depend on cash income from investments he will not be particularly interested in yields of around 3 percent when from other investments we have described he can get 10 percent, 12 percent or far more.
There is no certainty that the stock will appreciate. Appreciation is a nebulous and fortuitous thing, which may or may not take place, and many professional investors find that their portfolios decline despite their best efforts. The investor is perpetually in doubt as to how much money he has and whether his savings are intact or not.
There is also the possibility of a decline in the total fund of savings. One broker in a Washington investment house told me that he does not recall anyone to whom he talked who made money in the year 1960. All lost for the year. Even in a good year if one investor has a portfolio of 10 stocks, it is considered satisfactory if seven go up and only three go down.
When you get involved with the market, there are no guarantees or safeguards on the capital invested. You are worth every day just what the stock market says you are worth on that day, and not a cent more. Maybe the company is fine and the stock will go up, but your wealth is always measured by the daily stock quotation. When the quotation is lower, your fund of savings is lower. In a collateralized loan you have the signature of the borrower's corporation, very often his own personal signature and that of his wife, plus the security of the collateral. If the collateral is a mortgage on a pre-cut home the buyer of the pre-cut home must pay you. If he cannot pay then you can take over the home, liquidate it and get your money out. These guarantees and safeguards do not exist in the case of the purchase of stock.
One of the very worst features of stock ownership is that it is likely to lead to "stock market-itis." This is a species of neurosis that is most painful when you notice from the newspaper that your stock went down. It is a peculiar thing but often true, that a rise in the price of your stock of $2 does not give as much satisfaction as a drop of $1 gives pain. And on days when the whole market declines a great deal, the suffering can often be intense. Another manifestation of "stock market-itis" is the necessity to buy the very latest paper each day to follow the course of your stocks to the minute. All other news contained in the paper is secondary.
By its nature the stock market creates the jitters. If a person has say $1,000,000 all in one stock which is quoted at $50 per share, a decline for one day of $1 per share is nothing to get excited about, and is entirely usual. But a $1 decline means an actual loss of $20,000 for that one day.
Certain temperaments should not be in the market at all, because to operate in it successfully you must be with it all the time, and if this application worries you, the possibility of gain may well not be worth the anxiety involved. So, before investing your time, stress and attention in the stock market, be sure to consider whether you are the right kind of person for this kind of investment.