Truths about the stock market can be hard to see when headlines focus on crashes, bubbles and daily swings. The reality is more nuanced: people can and do lose money quickly, but patient investors have also built lasting wealth over time.
Key Points
In a widely shared breakdown, market commentator Sam Ro laid out ten core ideas that separate smart, long-term investing from short-term speculation and common misconceptions. Together, these truths about the stock market help explain why it can be both intimidating and rewarding — and why time in the market matters more than almost anything else.
The Long Game Is Still Undefeated
One of the most important truths about the stock market is that, over long stretches, it has powered through almost every kind of shock.
Ro points back to an op-ed Warren Buffett wrote during the depths of the global financial crisis. Buffett noted that in the 20th century, the United States lived through two world wars, multiple costly conflicts, the Great Depression, numerous recessions, financial panics, oil shocks, a flu epidemic and the resignation of a president. Even so, the Dow Jones Industrial Average climbed from 66 to 11,497.
Since that op-ed, stocks have also weathered a U.S. credit rating downgrade, a global pandemic and more. As of a recent Thursday close, the Dow was at 34,912 — just 2% away from a record high.
You also don’t have to wait a century to see the long game pay off. Since 1926, there has never been a 20-year period in which the broad U.S. market failed to generate a positive return. While nothing is guaranteed, Ro stresses that the odds of success rise as your time horizon lengthens.
Short-Term Pain Is Normal, Not an Exception
Another key truth about the stock market is that even in good years, it rarely moves in a straight line.
Historically, the S&P 500 has usually finished calendar years with gains. But during those same years, it has experienced an average intra-year drawdown of around 14% from peak to trough. A chart from J.P. Morgan Asset Management, highlighted by Ro, shows grey bars for annual returns and red dots for those within-year declines. The red dots are almost always there.
Bear markets can be brutal as well. Ro cites the swift 34% plunge in the S&P 500 between February 19 and March 23, 2020, and the slower, grinding 57% drop from October 9, 2007 to March 9, 2009.
One of the enduring truths about the stock market, then, is that long-term gains demand the ability to live with significant volatility along the way.
Don’t Expect “Average” Returns in Any Given Year
Many investors hear that the market returns about 10% per year on average and assume that figure is typical. Ro shows why that’s misleading.
Using work from Ben Carlson of Ritholtz Wealth Management, he points to a chart of annual S&P 500 returns since 1926. If 10% were a common outcome, you would see a cluster of dots hovering near that level year after year. Instead, the dots are scattered widely across the chart.
This messy pattern is one of the core truths about the stock market: it almost never delivers something close to its long-term average in a single year. Even if you knew exactly what would happen in the economy, it would still be very hard to predict next year’s stock returns.
Ro notes that, outside of extreme episodes like the Great Depression and the global financial crisis, it is hard to visually pick out the major economic booms and busts from that returns chart alone. The encouraging part is that most of those dots sit above zero, underscoring that stocks usually go up over time, even if the path is erratic.
Asymmetric Upside: More Room to Rise Than to Fall
Among the more powerful truths about the stock market is the idea of asymmetric upside.
A stock can only fall to zero, which means the maximum loss is 100%. On the upside, however, there is no built-in ceiling. A winning business can double, triple, or multiply many times its original value over the years.
Ro notes that markets have indeed seen some severe sell-offs. Yet, over longer periods, the cumulative advance has been much larger. From its low of 666 in March 2009, for example, the S&P 500 has risen more than sixfold.
As Ro emphasizes, that kind of outcome is not guaranteed, but it is available in a way that reflects one of the core structural truths about the stock market: downside is capped, upside is open-ended.
Earnings Are the Real Engine of Stock Prices
Behind all the noise, Ro argues, long-term moves in stock prices come down to a simple driver: corporate earnings.
Any lasting advance or decline in a stock can be traced to three variables — the company’s actual profits, expectations for future profits, and the level of uncertainty around those expectations.
News about the economy, interest rates or policy can move prices, but only to the extent that it changes how investors view earnings. Profits are the reason people buy slices of companies in the first place.
Among the most important truths about the stock market Ro highlights is that public companies are not charities. Their goal is to grow earnings, and over time, sustained growth in those earnings is what pushes stock prices higher.
Valuations Tell You Little About Next Year
Valuation tools, from simple price-to-earnings ratios to more complex models, are widely used to gauge whether a stock or index looks cheap or expensive. Ro is careful to note both their strengths and their limits.
Over long stretches, certain valuation measures may offer clues about prospective returns. But one of the practical truths about the stock market is that valuations usually say very little about what will happen in the next 12 months.
In the short run, an “expensive” market can get even more expensive, and a “cheap” one can stay depressed or become cheaper still. Ro also points out that valuations can remain stretched or subdued for years at a time, and some analysts argue they are not reliably mean-reverting.
The takeaway is that valuations can inform expectations over long horizons, but they are poor timers of next year’s move.
There Will Always Be Something to Worry About
Ro also stresses a psychological truth about the stock market: uncertainty never goes away.
Investing in stocks is inherently risky, which is why expected returns are relatively high compared with safer assets. Even in strong environments, there will always be reasons for caution — geopolitical tensions, economic data, political developments, or something else.
Ro points to a “chart of the decade” from Yahoo Finance’s Morning Brief to illustrate just how consistently investors have faced reasons to worry. The list of concerns changes, but the presence of concern does not.
For those waiting for a moment when risk disappears before investing, this is one of the toughest truths about the stock market: that moment never comes.
The Worst Shocks Are the Ones No One Sees Coming
While surveys of investors frequently rank top risks, Ro notes an irony: the most talked-about threats are often the ones markets have already begun to price in.
The truly destabilizing events tend to be those few people are focused on, or those that hardly appear on radar at all. When those risks surface, they can jolt prices in ways that models and forecasts did not anticipate.
This is another sobering truth about the stock market. It is not just the well-telegraphed issues that matter, but also the unknowns that rarely show up in consensus lists — until they do.
Constant Turnover Behind the Index Labels
Major indexes like the S&P 500 can look static from the outside, but Ro reminds readers that there is substantial churn inside.
Just as most businesses do not last forever, most individual stocks do not remain in benchmark indexes indefinitely. Companies that falter are removed, while faster-growing or more innovative firms are added. Over time, many of the market’s biggest winners have come from new, unexpected entrants.
Ro points out that this steady turnover is one of the quieter truths about the stock market. What is labeled as “index investing” is not truly passive in the sense of owning the same companies forever. Instead, the index is regularly refreshed, which has been a major contributor to long-run performance.
The Stock Market Is and Isn’t the Economy
Another widely misunderstood area involves the relationship between stock performance and economic data. Ro clarifies that the U.S. stock market is closely tied to the American economy, but they are not identical.
The economy represents the full spectrum of business activity, including many small and mid-sized firms. The stock market, by contrast, reflects the performance of the largest companies, which usually enjoy lower funding costs and scale advantages in sourcing goods and labor.
Many of these major corporations also operate globally, with meaningful portions of their revenue and profits coming from markets outside the United States. That means their growth can be influenced by conditions abroad as much as domestic trends.
Taken together, this shapes one of the more nuanced truths about the stock market: it is connected to the economy, but not a perfect mirror of it.
What These Truths About the Stock Market Mean for Investors
In closing, Ro acknowledges that markets could be on the cusp of a difficult, extended bear phase — or they could not be. No one truly knows.
What he emphasizes instead is the stock market’s long-standing upward bias. That tilt reflects basic human and economic forces. More people want life to improve than to get worse, and that desire creates demand for better products and services.
Entrepreneurs and businesses respond to that demand. The most successful ones grow their revenue, expand earnings and sometimes become large enough to enter major indexes. As those earnings climb, so do their stock prices, reinforcing the central role of profits in long-run returns.
For investors, the core truths about the stock market add up to a simple but demanding framework: accept volatility, ignore the myth of “average” annual returns, remember that earnings drive prices, and recognize that risk and uncertainty are inseparable from reward.
The details of each cycle will change. The fundamentals behind why stocks have delivered positive results over long horizons, as Ro outlines, have remained remarkably consistent.
