Make Money - You Can Make the Stock Market Predictable

To the outsider, the stock market appears random and erratic. What makes a stock go up or down? Experts can't seem to predict the market, so why should I even try? This uncertainty scares many potential investors away from the market and its high rate of returns. People are missing out on good money!

This is sad, because the stock market is more predictable than it appears. While they may look similar, stocks are not gambling. This article will shed some light on the unpredictable stock market and will hopefully make things predictable.

First, I have to concede one thing. The stock market is very unpredictable in the short-term. The market severely overreacts to news, whether it's company earnings, economic factors, or something silly like who wins the Super Bowl. Nobody can predict all the news, which makes the stock market unpredictable in the short-term.

But in the long-term (6-months to a few years or more), the stock market is very predictable. If the company makes a lot of money, the stock's price will go up. If the company doesn't make money, the stock price will go down.

When I purchase a share of a company, let's call it Predictable Stock Market, Inc., I am buying a portion of this business...and a portion of the money the comapny makes. I pay $60 for one share, which represents one of 6 million shares of the company. Let's say Predictable Stock Market, Inc. then earns $6 million in profit the next year. That means my portion of the earnings is $6. That's how much you're $75 share of Predictable Stock Market, Inc. made!

Now Predictable Stock Market, Inc. has a choice. The company can give that $6 directly to you as a dividend, or it can reinvest that $6 into the company to make even more money in the future. Let's say Predictable Stock Market, Inc. decides to give $2 to you as a dividend and reinvest $4 into expanding operations. The reinvested portion of earnings make the stock price go up, making your $60 share of stock will be worth around $64. And you'll have $2 of cash in your hand. It's that simple!

So you purchased the stock at $60. It's not worth $4 more and you have $2 in cash. That means your return was $6/$60...10%.