4 Market Myths to Abandon in 2021

Welcome to StockUp, the investing newsletter that wishes you the happiest of new years. -------------------------------------------------------------------------------------------------- [View this email in your browser]( Welcome to StockUp, the investing newsletter that wishes you the happiest of new years. This week, resolve to invest better in 2021 by abandoning four false beliefs. Plus, why shifting political winds could fan the flames of cannabis companies, and -- lest we all get too excited and/or hopeful -- 10 reasons the market might crash in 2021. (Although, in fairness, two appear to already be off the table since we published that piece. So maybe just eight?) — Nathan Alderman, StockUp Editor OUT WITH THE OLD 4 Market Myths to Abandon in 2021 --------------------------------------------------------------- Year after year, people who otherwise might be ready to jump into the market and start building real, long-term wealth get scared away by noxious notions that just don’t hold up to scrutiny. As we embark on what we all hope will be a better and brighter new year, Fool Chuck Saletta wants to make sure you don’t let these falsehoods stand between you and investing success. - You need a lot of money to start investing. Nope! The days of having to buy stock in 100-share lots, saddled with hefty commission fees, are over. Many online brokers now charge nothing to buy or sell shares. Super-cheap index funds can give you a stake in the entire market in one easy purchase. And even if you only have a modest sum to start with, plenty of services allow you to buy fractional shares -- tiny pieces of a single share -- and work your way up from there. - You need a professional to help you invest. Hi. We’re The Motley Fool. Have you met us? For more than 25 years now, we’ve been reassuring you that you do not, in fact, have to hand your money over to an expensive professional to get good returns. But if you do want a little expert advice, there are ways you can get it without paying an arm and a leg. - Wall Street pros are better at managing your money than you are. Excuse us while we laugh and laugh and laugh. As it turns out, most mutual funds managed by those very same professionals lose money compared to passive funds that just track the overall market’s ups and downs. - Investing is basically gambling. If you want to treat the stock market as a roll of the dice, you can, but we don’t recommend it. The house may always win when you’re playing in a casino, but with enough time, effort, and research, you can beat the market on Wall Street. Learn more about why these beliefs just aren’t true, and ways you can make better investing choices in the year ahead, when you [read the rest](. --------------------------------------------------------------- Already subscribed to a premium service? [Click here]( to view your subscriptions. Not a member yet? [Click here]( to sign up! --------------------------------------------------------------- JARGON DECODER So Moat It Be They don’t call it “Wall Street” for nothing; the big banks there build bigger barriers of baffling terminology to keep regular Fools like you intimidated, underconfident, and ready to fork over your cash to a broker. Each week, Jargon Decoder translates one of those worrisome words or phrases into plain English, helping you get a leg up on the Wall Street Wise. This week’s term: Competitive advantage, also known as a company’s moat. This term describes any strength that helps a company do better than its rivals. Our No. 1 guy Warren Buffett -- his long-term compounded book value growth is just so dreamy -- invented the “moat” analogy. Buffett likened companies to medieval castles that surrounded themselves with deep, water-filled trenches to keep invading armies from swarming them. A company’s moat holds off attacks from rivals. The deeper and wider it gets, the more effectively it works. For example, Buffett’s Berkshire Hathaway started out as a textile manufacturer. But while Buffett kept the name, he quickly ditched the business behind it, because it had no moat. Cloth is a commodity, and it’s hard for any one manufacturer to claim that its process or product is superior enough to command a premium price. Sure, you can invest in new equipment that weaves thread into cloth faster and more efficiently. But sooner or later, so can all your rivals, meaning that you spent all that money not to get ahead, but merely to tread water. Businesses like these struggle to build up the kind of lasting strengths that lead to long-term success. Competitive advantages take many forms, and the more of them a business possesses, the stronger it is. They include, but aren’t limited to: - Brand strength: Customers are willing to pay more for products they know and trust. Would you rather buy a laptop from Apple or Dell, or from Jim-Bob’s A-1 Totally Legit Non-Flammable Computer Company? - Patent protection: Patents don’t last forever, but while they do, they offer an ironclad legal guarantee that you can make and sell something your rivals can’t. Drugmakers thrive when their blockbuster products enjoy patent protection -- and often suffer when those patents expire, allowing generic manufacturers to make much cheaper copies of their medicines. - Network effects: Companies like Facebook and eBay benefit from having huge user bases. If you want to connect with friends or buy or sell goods, you probably want to do so on a service that already has tons and tons of people using it. When you’re sizing up a company, ask yourself: What does this business do better than its competitors? What keeps those rivals from coming in and eating its lunch? If the answer is “nothing,” maybe look at a different company. --------------------------------------------------------------- PUFF, PUFF, PASS LEGISLATION Why This Week Could Be Huge for Cannabis On Jan. 5, the Rev. Raphael Warnock and Jon Ossoff won their runoff races for the open U.S. Senate seats in Georgia. Their victories, once certified, promise to flip control of the Senate to the Democratic Party, if only narrowly. And as Fool David Jagielski reports, that might remove yet another obstacle standing in the way of allowing more states to embrace legalized cannabis businesses. President-elect Joe Biden’s platform includes decriminalizing marijuana (not the same as legalizing it) and changing its classification to render it a less dangerous substance in the eyes of the federal government. That would open up this particular form of leafy greens to further medical and commercial use. In recent years, the House of Representatives has passed bills -- several with bipartisan support -- to reduce cannabis’s criminal status, and to allow cannabis businesses easier access to banking services in states that have legalized the substance. But those bills went nowhere in the Senate. A change of leadership could improve their chances -- and with them, the hopes of investors in legal cannabis businesses. For more on what this might mean for pot stocks, and which specific companies might benefit most, open up a bag of cheese puffs, put on some Phish, and [read the rest](. --------------------------------------------------------------- ALEXA, DEFINE "SEDITION" [Smart Speaker] Not sure what to ask your smart speaker? Keep up with what's happening in the market by asking your Amazon Alexa or Google Home to "Play Motley Fool podcasts." --------------------------------------------------------------- *AS OF PRESS TIME 10 8* Reasons the Stock Market Could Crash in 2021 We Fools do our best to stay on top of the ever-changing news, but sometimes it gets ahead of us. When Fool Sean Williams compiled this list of reasons why Wall Street might see another stumble in the year ahead, he had 10 perfectly good known unknowns lined up. The Jan. 5 election in Georgia appears to have scratched two of them: - Rather than freaking out about the potential change of control in the U.S. Senate, the market seemed to be celebrating it, at least as of Jan. 6. - And new Senate leadership also dramatically decreases the odds that we won’t get further stimulus to help the U.S. economy bounce back from its COVID-created woes. But that still leaves eight perfectly good reasons not to count your proverbial chickens before they hatch. We’ve got the first three to get you started -- and they all revolve around vaccines and the ongoing pandemic. - The efficacy of still-under-review vaccines falls short. The COVID-19 shots that have made it to market thus far offer magnificent effectiveness rates of 94% or greater. But we’re going to need all the options we can get to successfully crush COVID-19, and if the vaccine candidates still finishing up their testing prove less successful at blocking the virus, the market’s optimism may begin to wane. - Not enough people get vaccinated. The U.S. government set a goal to get 20 million Americans inoculated by the end of the year; it reached only 4 million. And even if we get the logistical challenges sorted out, we still have to convince enough skeptical people to get the shot to finally get the disease under control. Any shortfall there could prolong the time it takes to get things back to as close to normal as they’ll ever get. - COVID-19 mutations spur new lockdowns. A new variant of the dreaded disease -- thankfully not more lethal, and still vulnerable to the vaccine, but significantly more contagious -- is spreading around the globe, including in the U.S. If it makes our current dark situation even worse, it could prompt more economic pain from emergency lockdowns. To discover five more reasons to not completely abandon your well-honed 2020 defensive crouch, do whatever the opposite of popping a bottle of champagne is, and [read the rest](. --------------------------------------------------------------- BUT WHO GETS CUSTODY OF THE PETS? FEATURED PODCAST [Market Foolery]( A Big-Name Healthcare Partnership Flatlines Three years ago, Amazon, Berkshire Hathaway, and JPMorgan Chase announced a partnership that would end up becoming Haven Healthcare. Now the partnership (and Haven) is dissolving. Plus, we take a moment to reflect on the 10-year anniversary of this podcast. [Subscribe on iTunes]( --------------------------------------------------------------- STIM-U-LATER Quick Reads - [No check for you!]( If you didn’t get a dose of (the current round of) COVID-19 stimulus, here are three reasons why. - [The Baha Men have been waiting all year for this:]( Whooooo let the (2021) dogs (of the Dow) out? (*assorted loud woofing noises*) - [Don’t panic -- you’ve got this:]( Gird up for your annual battle with Form 1040 with this Foolish checklist for filing your taxes. --------------------------------------------------------------- ANTS, GRASSHOPPER, ETC. Social Media Post of the Week [Stocks have gone up a lot -- congratulations. Just know that how you behave during the next bear market will be more important. It's the real test.]( [See all our Tweets!]( Join the 1,300,000+ people who follow us! 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