A recent article penned by Motley Fool writer Morgan Housel described some of the basic principles that need to be understood to invest successfully.
Morgan believes that one of the key things investors need to understand to succeed in the long term is the difference between entertainment and investment.
The rise of the internet and the ability to execute trades instantaneously has, for many investors, turned investing into something of a game or source of entertainment.
As a perfect example, through their brokerage accounts, 'investors' are now able to ascertain how much their wealth has increased or decreased since the previous session, while they can also sell into and out of stocks repeatedly, taking advantage of the slightest movements in their market prices.
This, as Morgan highlights, is entertainment. It's for day-traders and the like.
Investing, on the other hand, is all about the long-term. It's about analysing a business (not a ticker code) and logically establishing whether or not there is scope for that company to grow earnings and dividends in the long-run to generate market-beating returns.
More often than not, it requires you to sit on your hands and enjoy life away from the computer screen. Investment itself is "pretty boring", as Morgan so bluntly describes it.
Day traders will get lucky, from time to time, and the shares they trade often have the potential to literally double in price overnight. But there are also enormous risks involved, while the capital gains and brokerage fees can impact their overall gains in a very negative way.
Luckily for 'Foolish' long-term investors on the other hand, the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) has fallen heavily from its recent high levels and is presenting some high-quality companies at very reasonable prices.
If you're looking for a bargain or two, I would suggest looking at companies such as Coca-Cola Amatil Ltd (ASX: CCL) or Westfield Corp Ltd (ASX: WFD). Otherwise, check out the two small-cap superstars recently identified by our top analysts which could generate enormous returns over the coming years.
