According to Investopedia, these are the some of the top investing quotes of all time:
Timeless Financial Quotes
“An investment in knowledge pays the best interest.” — Benjamin Franklin
Education to facilitate a better job, occupation, or knowledge base has been the investment that has reaped the greatest personal rewards. This holds true with investments where necessary research and analysis are necessary before making any investment decisions.
“I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful.” — Warren Buffett
Be prepared to invest in a down market and to “get out” in a soaring market, as per the philosophy of Warren Buffett.
“It’s not whether you’re right or wrong that’s important, but how much money you make when you’re right and how much you lose when you’re wrong.” — George Soros
Too many investors become obsessed with being right, even when the gains are small. Winning big and cutting your losses when you’re wrong are more important than being right.
“Given a 10% chance of a 100 times payoff, you should take that bet every time.” — Jeff Bezos
Most people dismiss many of the best and most profitable investment ideas simply because they probably won’t work. These investors never stop to consider how much they could make if unlikely outcomes actually occur. Jeff Bezos took those bets and became the richest person in the world.
”Don’t look for the needle in the haystack. Just buy the haystack!” — John Bogle
If it seems too hard to find the next Amazon, John Bogle came up with the only sure way to get in on the action. By buying an index fund, investors can put a little bit of money into every stock.
”I don’t look to jump over seven-foot bars; I look around for one-foot bars that I can step over.” — Warren Buffett
Investors often make things too hard for themselves. The value stocks that Buffett prefers frequently outperform the market, making success easier.
”In investing, what is comfortable is rarely profitable.” — Robert Arnott
At times, you will have to step out of your comfort zone to realize significant gains. Know the boundaries of your comfort zone and practice stepping out of it in small doses. The best investment strategy can turn into the worst if you don’t have the stomach to see it through.
“How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case.” — Robert G. Allen
Though investing in a savings account is a sure bet, your gains will be minimal due to the extremely low-interest rates.
”Courage taught me no matter how bad a crisis gets … any sound investment will eventually pay off.” — Carlos Slim Helu
Don’t despair amid the inevitable setbacks that all investors face, especially during a crisis in the market.
“The individual investor should act consistently as an investor and not as a speculator.” — Ben Graham
Base your decisions on real facts and analysis rather than risky, speculative forecasts.
“The biggest risk of all is not taking one.” — Mellody Hobson
There is a direct tradeoff between risk and returns.
”It’s not how much money you make, but how much money you keep, how hard it works for you, and how many generations you keep it for.” — Robert Kiyosaki
If you’re a millionaire by the time you’re 30 but blow it all by age 40, you’ve gained nothing.
”Know what you own, and know why you own it.” — Peter Lynch
Do your homework before making a decision.
”Financial peace isn’t the acquisition of stuff. It’s learning to live on less than you make, so you can give money back and have money to invest. You can’t win until you do this.” — Dave Ramsey
By being modest in your spending, you can ensure you will have enough for retirement and can give back to the community as well.
“Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.” — Paul Samuelson
If you think investing is gambling, you’re doing it wrong.
“The four most dangerous words in investing are, it’s different this time.” — Sir John Templeton
Follow market trends and history.
“Wide diversification is only required when investors do not understand what they are doing.” — Warren Buffett
My personal favorite is a quote by Warren Buffett- “Only when the tide goes out do you discover who’s been swimming naked.”
Risk and poor judgment can be hidden during a rising market, just like a naked swimmer during high tide. But when the financial tide recedes it always exposes those who are unprepared or foolish.
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What Exactly are Stocks?
Stocks (known as Equities) represent ownership of small parts of corporations or businesses. Stock units are called shares and entitle the owner to part of the corporation’s assets and profits based on the number of shares owned. Stocks trade on highly regulated and monitored stock exchanges. These safeguards are meant to protect investors from fraudulent practices.
I own a hotdog stand. I am making money, but I am re-investing all profits back into the company. I decide that I need additional money to make my business grow, so I decide to take on an investor. The deal we make is that in return for his money, I will give him a small part of the business (Stock), and he will get a portion of the profits each year (dividends.) If the company grows, then his share of the business (stock) will become more valuable. This is what stock investing represents.
Types of Stock
There are two basic stock types- common stock and preferred stock.
- Common stock– common stock represents ownership in a company or corporation. As a stock holding owner of the company, stock owners are entitled to vote for the Board of Directors, and certain company policies. Usually, a stock purchase represents confidence in the future growth and earnings of a company. The more that investors are willing to pay for future earnings, the higher the price will be, and the higher the price-to-earnings ratio (P/E ratio) will become.
- Preferred stock– preferred shares represent a form of ownership in a corporation and often lack voting rights, but do come with regular and higher dividend payments. Preferred stock shares are sometimes considered to be a hybrid between bonds and common stock.
In the event of bankruptcy or liquidation, bondholders, preferred shareholders, and other debtholders are paid in full before common stockholders.
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Where Does One Buy Stocks?
According to Investopedia: The term stock market refers to several exchanges in which shares of publicly held companies are bought and sold. Such financial activities are conducted through formal exchanges and via over-the-counter (OTC) marketplaces that operate under a defined set of regulations.
Both “stock market” and “stock exchange” are often used interchangeably. Traders in the stock market buy or sell shares on one or more of the stock exchanges that are part of the overall stock market.
The leading U.S. stock exchanges include the New York Stock Exchange (NYSE) and the Nasdaq.
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Ways to Buy Stocks
- Online stockbroker
- Directly from the company
- Through a full-service stockbroker
Stocks are usually purchased as part of an index. There are approximately 5,000 U.S. indexes, with the three most widely followed indexes in the U.S. being the S&P 500, Dow Jones Industrial Average, and Nasdaq Composite.
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Stocks Categorized by Sector
You’ll often see stocks broken down by the type of business they’re in. The basic categories most often used include stock market sectors:
- Communication Services — telephone, internet, media, and entertainment companies
- Consumer Discretionary — retailers, automakers, and hotel and restaurant companies
- Consumer Staples — food, beverage, tobacco, and household and personal products companies
- Energy — oil and gas exploration and production companies, pipeline providers, and gas station operators
- Financial — banks, mortgage finance specialists, and insurance and brokerage companies
- Healthcare — health insurers, drug and biotech companies, and medical device makers
- Industrial — airline, aerospace and defense, construction, logistics, machinery, and railroad companies
- Materials — mining, forest products, construction materials, packaging, and chemical companies
- Real Estate — real estate investment trusts and real estate management and development companies
- Technology — hardware, software, semiconductor, communications equipment, and IT services companies
- Utilities — electric, natural gas, water, renewable energy, and multi-product utility companies
Source: The Motley Fool
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The Two Main Ways to Invest in Stocks
- Individual stocks
- Stock mutual or index funds
Index Funds vs. Stocks
Investing in individual stocks is riskier than investing in a group of stocks in a stock index fund. With an individual stock all funds are invested in one individual stock, so the chances of gain or loss or greater. With an index fund, there may be hundreds or thousands of stocks grouped together. The greater degree of diversification in stock index funds decreases risk, but the potential for gains is usually lower than in an individual stock.
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What Is the Efficient Market Hypothesis (EMH)?
According to Investopedia: The efficient market hypothesis (EMH), alternatively known as the efficient market theory, is a hypothesis that states that share prices reflect all information and consistent alpha generation is impossible.
According to the EMH, stocks always trade at their fair value on exchanges, making it impossible for investors to purchase undervalued stocks or sell stocks for inflated prices. Therefore, it should be impossible to outperform the overall market through expert stock selection or market timing, and the only way an investor can obtain higher returns is by purchasing riskier investments. (This makes outperforming the Market extremely difficult for most investors, and lends credibility to the philosophy of investing in Mutual Funds both to diversify and mediate Market risk.)
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Stock Classification
Stocks can also be classified according to style, performance, and size.
Stocks can be Large Cap (capitalization), Medium Cap, or Small Cap based on the value of the holdings. Stocks can also be classified as Growth or Value, Domestic or International, Emerging Markets, IPO, Dividend or Non-dividend, Cyclical or Non-cyclical, ESG, and Blue Chip or Penny stocks. These different classifications can be further subdivided to create multiple styles of stock classifications such as Large Cap Growth, Small Cap Value, or Large Cap International stocks. These different styles and classifications were discussed in more detail in the Blog titled: BUILDING A PORTFOLIO.
Over the course of forty years I have used stocks to create wealth in an efficient and passive manner. When I began investing there were fewer mutual fund offerings, no ETFs, and no ability to purchase stocks as an individual. All stock purchases and sales were initiated through a “stock broker” and entailed commissions on all purchases and sales.
Over the long-term, stocks have proven to be the best investment option. (See: BEST LONG-TERM INVESTMENT -FACT OR OPINION?.)
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Final Thoughts
- In its simplest form stock ownership provides for investor participation in the growth and profits of companies and corporations.
- Most investors participate in the Stock Market through the purchase of Common Stock.
- Stocks can be purchased directly from some companies and through online or full-service retail stockbrokers.
- Most investors purchase either individual stocks or through stock indexes and mutual funds.
- There are multiple classifications of stocks and mutual funds based on the size, style, and location of assets.
- EMH (The efficient market hypothesis) dictates that it is extremely hard for individuals to outperform the Market (generate Alpha).
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