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The Simple Way to Make Money on Stocks

Despite identical savings put in, when they retired, Larry would have nearly more than Jerry thanks to the higher returns.

Source: Author Calculations.

Despite identical savings put in, when they retired, Larry would have nearly $650,000 more than Jerry thanks to the higher returns.

And this is even despite the fact the study notes, "our estimates of the positive association between financial knowledge and investment returns may be understated." Meaning that difference could be even higher .

The Warren Buffett wisdom

Warren Buffett is undoubtedly one of the greatest investors of all time. From 1965 to 2013 the book value of his firm -- Berkshire Hathaway -- has grown by 19.7% each year, whereas the S&P 500 delivered a return of 9.8%.

That difference of nearly 10% each year means $100 in his firm nearly 50 years ago would be worth $693,518 today, whereas $100 placed in the S&P 500 would be worth $9,841.That is all to say, beating the market is a gross understatement.

But he once said:

I insist on a lot of time being spent, almost every day, to just sit and think. That is very uncommon in American business. I read and think. So I do more reading and thinking, and make less impulse decisions than most people in business. I do it because I like this kind of life.

He is clearly one who understands the value of reading and thinking, which leads to better learning and investing.

At times we can think the only way to make money is to have money, yet we must see, when it comes to investing, the key to success isn't the money we have, but understanding what to do with it.

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The article The Simple Way to Make Money on Stocks originally appeared on Fool.com.

Patrick Morris owns shares of Berkshire Hathaway. The Motley Fool recommends Berkshire Hathaway. The Motley Fool owns shares of Berkshire Hathaway. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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