Investing 101: From Stocks and Bonds to ETFs and IPOs, an Essential Primer on Building a Profitable Portfolio (Adams 101 Series) by Michele Cagan

CHAPTER 1
 BASIC ECONOMICS
 Investing is about making your money grow. That can’t happen
 unless the securities you invest in grow and pay out earnings. And
 that is directly tied in to the health of the economy.
 The most basic premise of the economy is this: If consumers
 spend money, the economy can grow; if they don’t, it can’t. When
 the economy is sluggish, consumer spending lags, overall corporate
 growth stagnates, and investors see poor returns. When the
 economy is booming, people spend money, corporations prosper,
 and investments grow. In fact, consumer spending makes up most
 of our gross domestic product (GDP), and that keeps the economy
 flowing.
 Understanding how the economy works, the cycles it goes
 through, and the impact changes have on the markets can help
 make you a more successful investor. In fact, investors who pay
 attention to the economy can be more successful because they can
 take advantage of impending changes. While everyone else is
 focused on what’s happening right now, economically savvy
 investors can focus on what’s coming—and profitable investing is all
 about future growth.

BUYING AND SELLING
 The Lifeblood of the Economy
 It’s certainly the case that the economy today is a very complicated,
 fast-moving mechanism. How could it be otherwise? We live in a
 world inhabited by nearly seven and a half billion people who are
 engaged in a never-ending interaction with one another. Some are
 buying; some are selling; some are manufacturing; some are
 consuming. Economics as a system allocates the things we need to
 live.
 Broadly speaking, if you’re going to get involved in investing your
 money, you don’t need to know a lot about how the economy works
 or the finer points of its more obscure corners. You do, however,
 need to understand some basic things about it.
 “The intelligent investor is a realist who sells to optimists and
 buys from pessimists.”
 —Jason Zweig
 Value and Price
 Humans buy and sell things because those things have value. This
 value is partly what you use them for (for instance, you use food to
 survive, you use a car for transportation, and you use movie tickets

Investing 101: From Stocks and Bonds to ETFs and IPOs, an Essential Primer on Building a Profitable Portfolio (Adams 101 Series) by Michele Cagan