The only logical reason to invest in common stocks

Investing is a job. A job is where you make money. You make money in the stock market by realizing a return on investment.

Return on investment comes in two forms: capital appreciation and dividends. Of the two the only one with a degree of certainty is the cash dividend, which is a company policy and announced on a quarterly basis.

Capital appreciation is the result of good analysis. When you identify a high-quality company that offers good value, meaning a repetitive area of high dividend yield, and the company has a long-term history of dividend increases, the probabilities are that capital appreciation will follow.

When added to the dividends and dividend increases collected along the way the result is real total return, which is the only logical reason to invest in common stocks.”

— Kelley Wright, IQTrends

Buffett blasted the belief that bonds were a lower-risk investment over the long term. He recommended investors stay in equities due to the negative impact from inflation on the purchasing power of fixed-income holdings…

If you had to choose between buying long-term bonds or equities, I would choose equities in a minute. If I were going to own a 30-year government bond or own equities for 30 years, I think equities will considerably outperform that 30-year bond.

I want to quickly acknowledge that in any upcoming day, week or even year, stocks will be riskier – far riskier – than short-term U.S. bonds. As an investor’s investment horizon lengthens, however, a diversified portfolio of U.S. equities becomes progressively less risky than bonds, assuming that the stocks are purchased at a sensible multiple of earnings relative to then-prevailing interest rates. It is a terrible mistake for investors with long-term horizons – among them, pension funds, college endowments and savings-minded individuals – to measure their investment ‘risk’ by their portfolio’s ratio of bonds to stocks. Often, high-grade bonds in an investment portfolio increase its risk”

— Warren Buffett

Most people are going to get a very small real return from investment after considering inflation and taxes. I think that’s an iron law of the world and if, for a brief period, some of us do better than that, we ought to be very thankful. One of the great defenses to being worried about inflation is not having a lot of silly needs in your life. In other words, if you haven’t created a lot of artificial demand to drown in consumer goods, why, you have a considerable defense against the vicissitudes of life

— Charlie Munger

People who spend a week choosing a furniture refinisher will sign up with the first financial planner who calls…

… People who circle junkyards for macthing hubcaps will buy mutual funds without reading the prospectus. People who check the expiration date on cottage cheese wouldn’t think of investigating the background of their broker. They know next to nothing about whether the broker has made or lost money for clients, whether he’s been reprimanded or sued, or how long he’s been in the investment business.”

— John Rothchild