Investing basics
Compounding, the rule of 72, assets versus liabilities, candlesticks and statements — how to think and how to read.
Games in this section
What it covers
- 1The compound interest formula and why time outweighs rate
- 2The rule of 72 as a doubling-time shortcut
- 3The risk, return and liquidity trade-off
- 4What counts as an asset and what counts as a liability
- 5What diversification smooths, and what it does not
- 6Reading a candlestick without treating it as a forecast
- 7Balance sheet lines and market capitalisation
Quick check
Three questions from this section.
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How does compound interest work?
Final value equals the principal times one plus the annual rate, raised to the number of years. At 8% a year money doubles in about nine years and grows roughly tenfold over thirty — time matters more than small differences in rate.
What is the rule of 72?
A mental shortcut for doubling time: divide 72 by the annual percentage return. At 6% money doubles in about twelve years, at 12% in about six.
How do you read a candlestick chart?
Each candle shows four prices: open, close, high and low. Named shapes like hammers and engulfing candles describe what already happened; none of them predict what comes next.
How is the P/E ratio calculated?
Share price divided by earnings per share, which equals market cap divided by net profit. There is no universal fair value — it only means something against the same industry or the company's own history.
What is the difference between an asset and a liability?
An asset puts money in your pocket, a liability takes it out. A home you live in has features of both, depending on carrying costs versus the rent you would otherwise pay.
Does diversification actually reduce risk?
It reduces the risk attached to any single holding, not the risk of the whole market falling. Diversification smooths volatility; it does not remove the possibility of loss.
Can you predict whether a stock goes up tomorrow?
Short-term moves are close to random. Given only a chart segment, people guess the next move correctly about half the time — the same as a coin flip.
Where should a complete beginner start with investing?
With compounding, inflation and the risk-return trade-off. Those three decide long-run outcomes, while technical patterns mostly describe short-term noise.
No investment advice, forecasts or recommendations. No real security is named and no account can be opened here.