The stock market is fundamentally different from what it was a decade ago. The Internet, frankly, changed everything.

We take it for granted now, but the Web democratized the buying and selling of stocks in an unprecedented way.

Party at the moon tower
Equities, for one, have become more accessible in two ways:

That's not just theoretical, either. According to a study by the Investment Company Institute, of the millions of households that own shares in mutual funds, "the Internet has become central to many shareholders' management of their finances. About eight in 10 shareholders with Internet access go online for financial purposes, such as to check their bank or investment accounts, obtain investment information, or buy or sell investments."

Shameless Spider-Man reference ahead
With great power, though, comes great responsibility. And data shows that such empowerment sometimes backfires.

As Fool co-founder David Gardner has said time and again, "The market is so short-term." The real-time streaming quotes, daily news stories, frequent analyst upgrades and downgrades, and quarterly earnings reports program investors into a certain mind-set, where minute-to-minute information becomes more significant than it needs to be. Investors, in short, outsmart themselves.

That's a conclusion from the work of professors Brad Barber and Terrance Odean, who studied the investing habits of 60,000-plus individual investors in the 1990s. They found that investors moved in and out of stocks far too frequently, thereby suffocating returns and generating excess tax and trading costs to boot. Put more simply, they concluded that "trading is hazardous to your wealth."

Why, then, do investors trade so frequently? In the words of Barber and Odean, "We believe that these high levels of trading can be at least partly explained by a simple behavioral bias: People are overconfident, and overconfidence leads to too much trading."

See, information breeds confidence. Many investors today -- pros and amateurs alike -- believe that they can know more than their fellow investors. But here's something we pretty much take as gospel these days: If you discovered a "trading signal" on the Internet, hundreds of thousands of other people did, too.

Get out of that mind-set
The recent market nosedive, and the subsequent doom-and-gloom news headlines, have been stressful. We've received a ton of email from folks wondering the same thing: What should our next move be? As we see it, the rules of the game haven't changed -- if you're seeking long-term wealth from the market, live by three rules:

The first point is paramount. "Buying companies" is much, much different from "trading stocks." It's also a lot easier and a lot more reliable. So if you want to make serious money in stocks, start with great companies. Continued...