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.
Coming soonOpens with this section's first games.
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Questions people ask
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 is a present economic resource you control, a liability is a present obligation to hand one over, and net worth is the difference. On that reading the home you live in is an asset and the mortgage left on it is a separate liability, which a balance sheet does not net off. The popular line that an asset is whatever puts money in your pocket comes from a cash-flow reading — it asks which things pay you every month, which is a different question from which side of the sheet a thing belongs on.
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.