Sunday, March 15, 2009

Why Buy Stocks?

Are you ready to buy stocks? To jump into the greatest passive wealth-building venue available to you, i.e. the ownership of companies through the stock market? I hope you are, because when you buy stocks you are holding assets which have exponentially outperformed all other investments over any long-term period within the last 200 years.

Maybe you are a bit anxious to invest in the stock market since as of this writing it has plummeted some 50% over the past year. If so, I think it would be helpful to consider this quote from the American economist and risk expert, Peter Bernstein:
Stocks must remain “the best investment for all those seeking steady, long-term gains” or our system will come to an end, and with a bang, not a whimper.

The richest man in the world, Warren Buffett, has done nothing but buy stocks – and this is how he has gotten wealthy. As he recently said, “I have no talents myself, so I found a way to leverage others’ talents [by buying stocks].”

I have never seen any better reason to buy stocks than this graph, which appeared in Jeremy Siegel’s great primer on buying stocks, Stocks for the Long Run:

Note that the graph is vertically logarithmic, and that the $12.7 mil that stocks would have grown to since 1802 is almost 700 times larger than the $18,235 returned by bonds over the same period. An emphatic reason to buy stocks!

Unless you are a super-talented and in demand worker on the order of a Michael Jordan or Madonna, the best way to make a lot of money has always been to own a company or companies, and thanks to the stock market, you can do this without even ever having to step foot on the grounds of that business. You can just buy stocks.

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