More Straight Talk on Investing

2You Gotta Have Trust

It all starts with trust. To succeed as an investor, you first must trust yourself to make sound decisions. Second, you must trust the world's economies and the financial markets to be your allies in building wealth over the long term. Third, you must trust in time and the power of compounding—the way that “money makes money.” Finally, you must trust in the firms and financial professionals who serve as your partners in your investing journey.

When I was nearly finished with the first edition of this book in the summer of 2002, the broad issue of investor trust and confidence was a staple topic of newspapers and newscasts. Not only had the stock markets taken a proverbial drubbing during the previous few years, startling revelations about misdeeds at companies, including Enron, Tyco, WorldCom, Xerox, and Qwest, resulted in huge investor losses and shook the capitalist system to its core. All, or nearly all, of the value of these once-admired companies was wiped away when the market learned that management had misled investors through deceptive or fraudulent financial statements.

While employees, investors, and the general public were injured in the devastation caused by these high-profile breaches of trust, there was a silver lining to these stories: They showed that the system worked. Corporate executives who manipulated their financial statements and violated investor trust were eventually caught and brought to justice. Moreover, these abuses led to ...