In 1988, Charles Givens published a bestseller called Wealth Without Risk: How to Develop a Personal Fortune Without Going Out on a Limb. I can only assume it was about inheritance, because there is no other way of getting wealthy without taking risk. (Even the Mega Millions lottery - one of the world's worst bets with 300 million-to-1 odds - requires that you risk two bucks.) Successful investment is about the intelligent management of risk. You can't avoid risk or eliminate it. You have to take it by the horns and deal with it. Every investment choice entails risk. Even if you keep all your money in cash investments like T-bills and certificates of deposit - not a terribly good idea, incidentally - you are taking the sizable risk that your purchasing power will fail to keep pace with inflation. Yet, terrified of seeing the value of their investments decline even temporarily, millions of investors do exactly this. That's understandable at first blush. After all, it's not easy watching your nest egg get scrambled as the stock market spasms in reaction to every piece of bad business news or new government statistic. Over the long haul, however, extreme safety comes at a steep price. Investors who take an ultra-conservative approach are exposed to a high degree of shortfall risk. (The risk that you will run out of money before you run out of heartbeats.) Many potential investors view the market as a giant casino. But, over the long term, nothing could be further from the truth. Historically, the odds of making money in the U.S. stock market are 50% in one-day periods, 68% in one-year periods, 88% in 10-year periods and 100% in 20-year periods. Stocks are not simply slips of paper with corporate names on them. A share of stock is a fractional interest in a business. And over the long haul there is one thing about equities that you can take to the bank: Share prices follow earnings. Look back through history and you will not find even a single company that increased its earnings quarter after quarter, year after year, and the stock didn't tag along. Conversely, try to uncover one whose earnings declined year after year and the stock continued to move up. It just doesn't happen. That's why Benjamin Graham famously said of the stock market, "In the short run it's a voting machine, but in the long run it's a weighing machine." And what it weighs is earnings. Regardless of what the market does next week or next month, you can count on it to reflect corporate profits over the long term. When results are measured not in months or years but decades, nothing has rewarded investors better than common stocks. They are the greatest wealth creator of all time. | 
No comments:
Post a Comment