Chapter One

You probably already know this. After all, you're reading a book called Your Next Great Stock. But you should own stocks.

There's nothing abstract or exotic about a stock. It's simply a piece of a business. Stocks are born when companies sell shares of themselves to investors. Sometimes they do this because the original business owners want to cash in part of their stake. Sometimes companies issue shares because they want to raise money for expansion.

Many stocks trade freely among investors after they're issued. Their prices are determined by investor demand, which is, in turn, determined by how valuable investors think these businesses are or will become. If you own stocks, you own businesses. If you pick good businesses-ones that grow and become more valuable-the price of your stocks will rise. Your businesses might also distribute part of their profits to you in cash. They might make big, one-time distributions when the opportunity arises or little, periodic ones, in fairly regular amounts. These payments are called dividends. The combination of share price increases and dividend payments make up, for the most part, the total return you receive from your stocks. The purpose of this book is to show you how to find businesses that are likely to produce large total returns.

Owning stocks, even ones that produce average returns, is the best way to build wealth over long time periods.

I know; right now seems like an uncertain time to buy stocks. There's that scandal in the news about the boss who stole money and made his stock price plummet. T