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Trust in the power of the market from "summary" of The Little Book of Common Sense Investing by John C. Bogle
The idea that underlies all our discussions is really a quite simple one. It is the concept of trust in the power of the market. In a world where the future is unknowable and unpredictable, where even the wisest and most knowledgeable among us cannot consistently foresee the twists and turns of the economy, we place our trust in the market itself. We trust that, over the long term, the market will reward the patient, the disciplined, and the diversified investor. This trust is based on a few key principles. First, we trust that the market is efficient - that is, that it reflects all available information and that prices are fair. Second, we trust that the market is resilient - that is, that it can weather the storms and shocks that inevitably come its way. And third, we trust that the market is ultimately rational - that is, that over time, it will reflect the true underlying value of the companies that make up the economy. In placing our trust in the market, we are not saying that it is perfect or infallible. Quite the contrary. The market is made up of millions of individual investors, each with their own hopes, fears, biases, and blind spots. It is subject to bubbles and crashes, fads and fashions, manias and panics. It is, in short, a human institution, and as such, it is prone to all the foibles and follies of human nature. But despite all this, we believe that in the long run, the market will get it right. We believe that, over time, the collective wisdom of all those millions of investors will prevail. We believe that, over the long term, the market will reward those who stay the course, who resist the temptations of greed and fear, who keep their eyes on the distant horizon.- We are really talking about trust in ourselves. We are talking about the confidence that comes from knowing that, despite all the uncertainties and vicissitudes of the market, we are ultimately on the right path. We are talking about the peace of mind that comes from knowing that, in the end, the market will deliver the returns that we need to achieve our financial goals. And we are talking about the faith that comes from knowing that, by staying true to our principles and our plan, we can weather whatever storms may come our way.
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