Top Highlights

• Investors would be far better off buying and holding an index fund than attempting to buy and sell individual securities or actively managed mutual funds.
• A speculator buys stocks hoping for a short-term gain over the next days or weeks. An investor buys stocks likely to produce a dependable future stream of cash returns and capital gains when measured over years or decades.
• All investment returns—whether from common stocks or exceptional diamonds—are dependent, to varying degrees, on future events. That’s what makes the fascination of investing:
• The firm-foundation theory argues that each investment instrument, be it a common stock or a piece of real estate, has a firm anchor of something called intrinsic value, which can be determined by careful analysis of present conditions and future prospects. When market prices fall below (rise above) this firm foundation of intrinsic value, a buying...
• The theory stresses that a stock’s value ought to be based on the stream of earnings a firm will be able to distribute in the future in the form of dividends.