Beyond the Noise: A Guide to Long-Term Success in Stock Markets

First and foremost, only invest in the stock market if you have money you won’t need for the next 5-10 years. This approach allows you to weather short-term volatility and capitalize on long-term growth. Additionally, it's important to consider the macroeconomic outlook, including rare events, potential geopolitical events, such as wars, and long-term economic growth projections.

Long-Term Trend: While predicting short-term stock trends is challenging, forecasting long-term trends is more feasible. Public expectations and monetary policy are the two main driving forces of the long-term trends. When both are positive, the stock market tends to rise. If one is positive and the other negative, the market generally remains stable.

Monetary policy: Monetary policy plays a significant role in mid-term trends. A positive monetary policy can eventually boost public expectations, leading to market growth. This policy is typically managed through interest rates, including both short-term rates and long-term bond rates. A higher bond rate makes the stock market less attractive, as investors prefer bonds, reducing the capital flow into stocks. The long-term bond rate is determined by supply and demand dynamics. If bond supply exceeds demand, rates rise to attract investors. Conversely, when the government requires less funding, bond rates drop.

Monetary policymakers often consider factors such as inflation, unemployment, and economic growth when making decisions. It’s important to note that there is often a lag between the implementation of monetary policy and its impact on the economy, usually about 12 months.

Inflation can occur during periods of rapid economic growth when rising demand outpaces supply, driving up prices for goods, services, and raw materials. This increase in costs leads to higher retail prices and household expenses as well as necessitating wage increases, further driving up manufacturing costs. This creates a spiral effect between wages and prices, exacerbating inflation.

Stock and Economy: The relationship between the economy and the stock market is like a man walking a dog: the man represents the economy, and the dog represents the stock market. While they move in the same long-term direction, their short-term paths can differ significantly.

Stock Cycles: Understanding market cycles helps make smart investment decisions. Stock price and trading volume provide clues about the cycles. A buy signal often emerges when stock prices start rising slowly but trading volume remains low, indicating early buying by a small proportion of investors. As prices climb and volume surges, the market gets overheated. A sell signal may appear when prices continue rising but volume begins to drop, suggesting that savvy investors might be selling. During a downturn, stock prices drop while volume initially remains low, potentially leading to panic selling characterized by falling prices and increasing volume as more investors become fearful. The cycle often ends with a buy signal at the bottom, marked by peak trading volume during the decline —the best time for long-term investors to buy. The "spiral phenomenon" occurs in both upward and downward trends, as most investors tend to follow the crowd without much independent thinking.

Stock prices are influenced by supply and demand dynamics. When stockholders feel psychological or physical pressure to sell—whether due to negative expectations, financial obligations, or leveraged investments—while the demand side lacks urgency to buy, prices will drop. Conversely, when there is strong pressure on the demand side to buy, and stockholders are not pressured to sell, prices will rise.

The stock market reacts quickly to predictions, news, and rumors, often moving sharply before events occur, leading to smaller reactions when they actually happen. Don't react to every piece of news, focus on information that fundamentally changes the landscape—news with profound impacts that alter underlying assumptions or foundations.

Last but not least, patience is essential for successful stock investment, avoiding short-term speculation.