A newcomer to the stock market faces three paths that lead into a forest full of treasures and dangers. The first path, for money investors, goes through the sunniest areas. Most of those who take it come out alive, if not much richer. Another path, for traders, leads into the heart of the forest. Many travelers disappear, but those who come out look rich. The third is a shortcut that takes gamblers into the swamp.

How can you tell which path is which? You must choose your way carefully because if you don't, you'll end up on the gamblers' path, especially since it crosses both investors' and traders' trails. We'll return to this question in the chapters on stock trading psychology.

AN INTELLIGENT INVESTOR

Investors profit by recognizing new trends in the economy and buying into them before the majority wakes up to opportunities. A known edgeable equity investments can earn huge percentage gains by holding his posi tion without being terribly active.

Back in the 1970s, I bought stock in a company called KinderCare, which ran a chain of child care centers. It tried to make them as uniform and reliable as McDonalds' hamburgers. KinderCare catered to baby boomers who were having babies right, left, and center. Half of my friends were pregnant at that time. A major social shift was taking place in the United States , with women going to work in record numbers. Someone had to mind the babies of all those two-income families, and the stock of KinderCare soared on the crest of a new social trend.

AT&T used to have a monopoly on long-distance phone calls. Then in the late 1970s a tiny brash upstart called MCI won a legal dogfight, allowing it to compete with AT&T. The age of deregulation was upon us, and the stock of MCI-the first company into the breach-sold for $3 presenting another great opportunity to hop aboard a new trend.

A few years ago I flew into New York from the Caribbean with my friend George. He became a millionaire by buying $30,000 worth of Dell stock before most people had heard of the company-and unloading it at the top three years later with the help of technical analysis. Sprawled in his first-class seat, George was perusing several stock invest advisories, trying to lock in on the next trend in Internet technology. How right he was! Within a year Internet stocks were flying, defying gravity.

That's the lure of investing. If you can buy a chunk of Dell at $4 a share and cash out at $80 a few years later, it is easy to fly down to a resort for a week rather than sit in front of a monitor watching every tick.

What are the disadvantages? Investing requires a great deal of patience and an immense supply of self-confidence. To buy Chrysler after it was rescued from the brink of bankruptcy or Internet search engines before anyone knew what those words meant, you had to have a huge level of confidence in your ability to read the trends in society and the economy. All of us are smart after the fact; very few are smart early in the game, and only the tiniest percentage has the emotional strength to make a large bet on their vision and hold on to it. Those who can do this consistently, like Warren Buffett or Peter Lynch, are hailed as superstars.