For new investors, the stock market can feel like a maze of contradictions — a place where fortunes are built over decades but can evaporate overnight. Headlines warn of crashes, volatility, and bubbles, yet long-term wealth creation overwhelmingly happens in equities. The confusion often stems from common misconceptions about how the market works and why investor behavior, more than economic conditions, determines long-term results.
Understanding the rules of this game — the real rules — is what separates those who panic at every downturn from those who build steady, lasting wealth. Below are ten enduring truths about the stock market, rewritten and expanded to help you invest with clarity, confidence, and discipline.
1. The Long Game Always Wins
Despite wars, recessions, energy crises, pandemics, inflation waves, and political chaos, the stock market has historically recovered — and surpassed prior highs.
Warren Buffett summarized this better than anyone:
“Over the long term, the stock market news will be good.”
History backs him up. Over the last century, the market endured countless crises, yet:
- The Dow rose from 66 to over 34,000
- The S&P 500 generated positive returns in every 20-year period since 1926
- Long-term investors consistently outperformed market timers
Short-term drops are common. Long-term upward trends dominate.
The stock market’s greatest reward is reserved for those patient enough to stay invested. Time, not timing, is the ultimate edge.
2. In the Short-Term, You Can Get Crushed
Volatility is part of the deal. The S&P 500 typically experiences:
- An average annual drawdown of 14%, even in good years
- Sudden crashes like the 34% drop in March 2020
- Slow, grinding declines like the 57% fall during 2007–2009
Losing money — temporarily — is not a sign of failure.
It’s a feature of how markets function.
If you invest for the long run, you must accept turbulence along the way.
3. You Will Rarely Get “Average” Returns
Although the long-term average stock market return is around 10%, almost no individual year lands anywhere near that number. The market swings wildly:
- +30% one year
- –15% the next
- +7% after that
- +27% the following year
Ben Carlson’s chart of S&P 500 returns since 1926 shows a chaotic scatter of dots — proof that “average” years barely exist.
This is why forecasting short-term returns is nearly impossible.
Economists frequently misjudge markets even when they correctly predict the economy itself.
But the chaos masks a simple truth:
Most years are positive — and overwhelmingly so.
4. Stocks Have Unlimited Upside, Limited Downside
A stock can fall 100% at most, but it can rise:
- 200%
- 1,000%
- 10,000%
- Or more
This creates a powerful asymmetry.
Many legendary returns come from a handful of big winners:
- Apple
- Amazon
- Nvidia
- Tesla
- Alphabet
From the S&P 500 low in 2009, the index has risen more than sixfold.
Downside is capped. Upside isn’t.
This is why staying invested matters — the next generational winner is almost always hiding inside the index.
5. Earnings Are the Real Driver of Stock Prices
Over long periods, stock prices follow corporate earnings. Everything else — interest rates, inflation, geopolitical events — matters only insofar as they impact earnings.
A company with growing profits tends to see a rising stock price.
A company whose earnings stagnate or shrink sees its stock lag.
This is why fundamentals matter.
And why speculation doesn’t last.
6. Valuations Are Useless for Predicting Next Year
While valuations can hint at long-term future returns, they are nearly worthless for predicting short-term performance.
- “Expensive” stocks can keep rising
- “Cheap” stocks can stay cheap for years
- Mean reversion is not guaranteed
Markets can remain irrational far longer than your portfolio can tolerate impatience.
If you think the stock market “must” fall because valuations look high, history says otherwise.
7. There Will Always Be Something to Worry About
Economic fears never go away. Ever.
In every decade, investors believe “this time is different”:
- 1970s: inflation
- 1980s: interest rates
- 1990s: tech valuations
- 2000s: housing bubble
- 2010s: European debt crisis
- 2020s: pandemics, AI bubbles, geopolitics
The market climbs a wall of worry because investors get compensated for taking risk.
If there were nothing to worry about, stocks wouldn’t deliver strong long-term returns.
8. The Biggest Risks Are the Ones No One Sees Coming
Markets already price in the risks people talk about:
- Inflation
- Rate cuts
- Elections
- Recessions
The real shocks — the ones that trigger true volatility — come from out of nowhere.
Examples:
- COVID-19
- Lehman Brothers collapse
- 9/11
- The dot-com bubble bursting
Markets don’t fall because of the risks everyone predicts.
They fall because of the risks no one was talking about.
9. The Stock Market Constantly Reinvents Itself
The stock market isn’t a museum — it’s a revolving door.
Most companies don’t last forever.
The S&P 500 sees constant turnover as older firms fade and emerging leaders rise. Many of today’s biggest winners — Tesla, NVIDIA, Meta — weren’t even in the index two decades ago.
This churn is healthy. It means the market adapts and evolves.
And as new giants emerge, they contribute to long-term market expansion.
10. The Stock Market Is Connected to the Economy — but Not the Same Thing
The economy includes every business in America.
The stock market includes the biggest and most competitive ones.
Because large public companies have:
- Better access to capital
- Stronger pricing power
- Global supply chains
- Larger workforces
They often outperform during economic slowdowns.
This is why sometimes:
- The market rises while the economy weakens
- The market falls during strong economic periods
The two are related — but not interchangeable.
The Market Rewards Patience, Not Prediction
Trying to forecast the market is tempting, but history proves that long-term investors outperform short-term traders almost every time. Even though downturns can be painful and uncertainty can shake confidence, the stock market has one consistent trait: an overwhelming tendency to rise over time.
Why? Because innovation, ambition, and human progress push businesses to grow — and investors share in that growth.
There will be downturns. There will be panic. There will be years where the market feels impossible to understand.
But if you stay invested, stay patient, and stay disciplined, the market’s upward bias becomes your greatest ally.
The truth is simple:
People want the world to get better — and markets reflect that optimism over the long run.