Theory of investing


1. the investing of money or capital in order to gain profitable returns, as interest, income, or appreciation in value.

Based on the above definition, investing is different from saving as the investment focuses on the gain/return. Most investors start as savers. They put aside money for future consumption. Popular savings options include bank deposits and index funds. The saver turns into an investor when she/he starts to make investment choices based on the expected returns. "Index investors" that "dollar cost average" never make this transition but continue to save without ever evaluating the expected future returns. 
Here we will cover the fundamentals of investing in stock market: 
1. We will learn how to evaluate the stock market returns based on the dividend discount model (DDM). 
2. The model is applied to evaluate the market discount rate - the return that investor can expect to get from the market.
3. The DDM is compared to the price appreciation of SP500.
4. The investment time horizon is related to the dividend yield.
5. The relative value of yield and growth is compared.