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Intro to Stocks Two Arrows

by WealthEffect Staff


When you buy stock, you become an owner
  If you wouldn't want to own the whole company, don't buy a piece of it  
  Think like an owner  

When you buy shares of stock in a company, you become an owner of that company. Don't think of your stock as a quote in the financial pages or a roll of the dice — your shares represent a piece of a company's future.

Your decision to buy stock should be based on a simple question: Would you want to own all of this company? If you wouldn't be happy to own the whole company, you shouldn't bother to buy any of it. The success or failure of your individual investment will depend on the success or failure of the whole company.

Because the future of your investment is tied to the future of the company, you should think like an owner. Ask yourself: What kind of a company would I want to own and what kind of a management would I like to have working for me?

Phil Fisher, one of great investment minds, offered the analogy of investing in the future earnings of your high-school classmates. Given the choice, most people would want a piece of the lifetime earnings of those few exceptional classmates with the qualities most likely for success. Why not, then, apply the same logic to investing in the lifetime earnings of businesses?

Suggestion: If you have some questions about bonds and cash, click here. If not, go to How You Profit from Stocks

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