Center Research Security Price (CRSP) – an investment research center- has find that stocks give high return to investor from 1926 to 1999. Small stock give return about 18.81 to investor. Meanwhile large stocks who represent large company give return to investor are 11.33.
Investing in stock not only give you return but also risk. You cannot assure your stock always rise so that you can gain profit. There is no side who guarantee your money in stock company even government. In the meantime, the government guarantees certify deposit and saving in any Bank. The investor could loss the entire of money in investing at stock companies.
I have story from my classmate. He told to me that his friend investing in stock companies. For a while, he has been success to gain high profit but writer friends did not tell how high his return. At last, he killed himself by jumping from 33rd floor high building. He cannot stand to suffer financial loss. He still has debt to other side.
The movement price of the company stocks seems sea wave. Sometimes they may up, but sometimes they may down repeatedly. Company stocks are also so volatile. They move often unpredictable. Good news cannot guarantee the stock price will rise. Conversely, bad news cannot guarantee the stock price will down.
Do not imagine high rate of return guarantee you high profit. Rate of return does not mean you will get profit 18.81%. For Example, you put $ 1000 one year ago. This year you may get $ 1188.1 (1000 (1+0.1881). That illustration is an example is a note; your return may higher or lower. Every stock company has a different type. Rate of return just count all stock include bad stock and good stock divided by companies shares. It is possible there are companies with no return or minus return.
You must count the risk too. The risk is represented by standard deviation. The high risk will equivalent with high standard deviation value. The CRSP notes the small stock has higher standard deviation about 39.68%. On the other hand, large stock has higher deviation about 20.21%. That high-risk means your return has variety from -20.87 % (18.81% – 39.68%) to 58.49 % (18.81% + 39.68%). For large stock that your return vary your return vary form -7.1 % (13.11%-20.21%) to 33.31 % (13.11% + 20.21%). You can see that your return could vary. Sometimes you will gain profit but other time you can lose 20% your investment.
Enron is the example of the danger company stock. The Enron order the employee to buy the stock for their retire fund. Finally, the Enron bankrupt, surely the employee did not get anything.
Stock company is dangerous things especially you invest in one stock company. You can construct better portfolio to reduce risk. Buy some various company stocks from different company and industry.