Introduction
Investing in the stock market can seem like venturing to a foreign country where the inhabitants speak a language you don’t understand. People are shouting numbers and terms that are meaningless to you. Screens flash, letters and numbers scroll across endlessly, and it seems to be utter chaos.
Welcome to Wall Street.
The world you see on cable television and buzzing around the internet is only part of the picture. This part of Wall Street is dedicated to stock market traders, and every market move up is cause for celebration and every move down cause for alarm.
The other part of Wall Street is quiet, calm, and logical. It’s where you find long-term investors who buy great companies at great prices and let them build wealth over time. When you become a resident of this world, you realize that about 98 percent of the daily noise surrounding stocks is meaningless to long-term investors.
This book is for long-term investors and describes how you can identify, analyze, and buy great companies at great prices. Long-term investors buy companies, so most of your work will be valuing companies, not stocks. If analyzing a business seems impossible, not to worry. Thanks to the internet, virtually everything you need to analyze companies is free or available for a small price.
Is it easy to pick great stocks? No, it is not, but it is also not impossibly hard either. It takes work, patience, and an understanding of the process, which is where this book comes in. I’ve boiled the process down to its essentials. When you understand the essentials, you are ready to begin. As you work through the process, you will gain confidence and learn more about the benefits of long-term investing.
Warren Buffett became a billionaire many times over by buying great companies at great prices and letting them make him rich over time. Will you make a billion dollars using this book’s essentials? Probably not—however, if you do, remember who got you started. I do hope what you learn here helps you build an investment plan to reach your financial goals.
You might want to check out my two websites:
• Stocks.about.com, where I write about investing in stocks
• Yourmoneyin60seconds.com, where I write about investing in general
Fast-Track Extras
Throughout this book, you will find sidebars with extra information that will further your understanding of the topic at hand. They appear as follows:
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DEFINITION |
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STOCK TIP |
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MARKET RISK |
Many thanks to the fine folks at Alpha for all their hard work on this book: Brook Farling, Mark Reddin, Janette Lynn, and Tricia Liebig. It is a much better book than what I submitted and I am grateful for their suggestions, corrections, and general shepherding of this project.
Trademarks
All terms mentioned in this book that are known to be or are suspected of being trademarks or service marks have been appropriately capitalized. Alpha Books and Penguin Group (USA) Inc. cannot attest to the accuracy of this information. Use of a term in this book should not be regarded as affecting the validity of any trademark or service mark.