A Stock is Much More Than a Lottery Ticket Stop Orders in Forex Trading

American and British Stock Performance is Not Representative of the Rest of the World

Suppose you're a young investor pondering whether to invest your retirement savings in bonds or equity. You are vaguely aware of some studies showing that over sufficiently lengthy periods of time, stocks have, in the past, substantially outperformed bonds (an observation which is often referred to as the "equity premium puzzle"). So you are tempted to put your money into equity. You might want to consider, though, that a selection effect might be at least partly responsible for the apparent superiority of stocks. While it is true that most of the readily available data does favor stocks, this data is mainly from the American and British stock exchanges, which both have continuous records of trading dating back over a century. But is it an accident that the best data comes from these exchanges? Both America and Britain have benefited during this period from stable political systems and steady economic growth. Other countries have not been so lucky. Wars, revolutions, and currency collapses have at times obliterated entire stock exchanges, which is precisely why continuous trading records are not available elsewhere. By looking at only the two greatest success stories, one would risk overestimating the historical performance of stocks. A careful investor would be wise to factor in this consideration when designing her portfolio.