Over the past few weeks, I've shared several posts on value investing: Does it work? Where do you look for value stocks? What are some things Berkshire Hathaway look for when investing? In today’s article, we'll discuss picking stocks for the long term.
When you own a stock, you’re a partner with an expanding business. With the purchase of a bond, you’re essentially lending the company money and the relationship ends with the payoff of the debt.
Historically—in spite of crashes, depressions, wars, recessions—investing in stocks is more profitable than investing in debt. Stocks in general have paid off fifteen times as well as corporate bonds.
Assuming at stock has a 10 percent return a year, and the Consumer Price Index (CPI) is 3%, that gives the stock a real return of 7%.
By asking some basic questions about the business, you can learn whether it’s likely to grow and prosper, but keep in mind that you can never be certain what will happen. Your greatest advantage is the reward for being right.