Predictability of Stock Returns and Dividends - Coursework Example

Investment means the use of your intelligence, knowledge, and skill to make your money earn more money so that your invested capital snowballs over time into a sizeable fortune. It requires time, patience, and systematic work. Over a period of time, most investors become reasonably healthy, while some of them even succeed in becoming enormously rich. Quite often, in fact, usually, they end up making more money than most speculators and gamblers. J. Paul Getty was -one such outstanding example. He became the world's richest man and accumulated a vast fortune of over the U.S. $ 2 billion but it took him over fifty years of consistent and steady investing to do so. It would be useful for you to ponder over what he says:

“Get-rich-quick schemes just don't work. If they did, then everyone on the face of the

 Earth would be a millionaire. This holds true for stock market dealings as it does for any other form of business activity.

Don't misunderstand me. It is possible to make money and a great deal of money in. the stock market. But it can't be done overnight or by haphazard buying and selling. The big profits go to the intelligent, careful, and patient investor, not to the reckless and overeager speculator.” (Navjot       57)

In the stock market, the heart of the investment process consists of selection, timing, and price. It is all a question of selecting the right company, buying shares in it at the right time and price, and subsequently selling them at the right time and price. Success on the stock market will therefore hinge on your ability to make the right decisions with respect to selection, timing, and price. However, these decisions alone will not enable you to make the amount of money you want. That will depend on the following four factors:

(i)        The amount of money you initially invested;

(ii)       The period over which the money is invested;

(iii)      The rate at which the invested capital appreciates in value; and

(iv)      The income you receive from your invested capital during this period.           

Therefore, to achieve investment success you should keep these four factors in mind while taking decisions on selection, timing, and price.