Investing Academy: short lessons with exercises and real data

You have bought part of the company. A fixed-interest loan to a company is a bond, not a share.

A 10% fall from a peak is called a correction, and it happens often. Sometimes it was the start of a crisis, but in more than half of the years with falls like this, the index still ended the year higher.

An emergency fund is a safety net, not an investment. Its job is to be there when you need it, even if it earns very little.

In a single year the stock market can fall 20-30%. For money you need soon, safety matters more than return.

In investing, risk means variation first of all: how far and how fast the value can change. B could be down 30% in exactly the year you need the money. A lower return is not the same as higher risk, and a good average does not cancel out the falls along the way.

Over long periods, the good years have usually made up for the bad ones. Crises happen, but so do recoveries. For the S&P 500, losing periods became rarer as the holding period grew. When you buy matters a lot over one year and less and less over twenty.

With 3 shares, each is a third of your money: bad news at one of them is felt straight away across the whole portfolio. Shares held directly have no annual fund charge, and big companies can fall a long way too.

If you can’t explain simply how the firm makes money, you won’t be able to judge the good news or the bad. A recent price rise and popularity say nothing about the business.

The exchange only matches orders. The price is the last level at which a buyer and a seller traded. The company sets a price only when it sells new shares, for example when it lists (IPO).

A limit order waits in the order book and fills only at $96 or less. A market order would fill now, at about $102. A sell stop is for shares you already own.

In Vanguard’s study of the US, UK and Australia, the lump sum came out ahead in about two out of three periods. Markets rose in more years than they fell, so money invested earlier had longer to grow.

£200 ÷ £450 ≈ 0.44. With fractional shares, the whole amount is invested from the first month, whatever one unit costs.

You still own the same units of the ETF; they are just worth less today. Sell now and the $2,500 becomes a realised loss. Hold on and the value may recover, or fall further.

A 2008 study by McKenzie, Liersch and Yaniv sums up earlier research: the true value typically falls inside such ranges only 30-60% of the time. We make our ranges too narrow because we think we are more precise than we are.