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3 Facts You Need to Know About the Stock Market

By Dan Caplinger - Updated Mar 7, 2017 at 4:10PM

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Investing in stocks is smart, but you need to know how the market works.

Investing in stocks is a big key to long-term wealth and prosperity. But you need to know the basics of the stock market to be a good investor.

In the following video, Dan Caplinger, the Motley Fool's director of investment planning, discusses three key facts about the stock market. Dan examines three different ways to categorize stocks and points out some of the advantages and disadvantages of each group of stocks. Specifically, in discussing the historical edge that small-cap stocks have over large caps, he looks at the example of the energy industry and the struggles that oil giants ExxonMobil (XOM 0.87%) and Chevron (CVX 0.14%) have in keeping their production levels up, even as small up-and-coming exploration and production companies produce huge growth.

Dan goes on to examine the value-versus-growth debate, using the recent struggles of Intuitive Surgical (ISRG 1.00%) as a way to highlight the challenges high-growth stocks face when their growth inevitably falters. Finally, Dan talks about international stocks, noting that the long-term performance of the iShares MSCI EAFE ETF (EFA 0.77%) is very close to the domestic SPDR S&P 500 (SPY 1.69%), but that the two often produce different returns year-to-year, providing some diversification.

Fool contributor Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Chevron and Intuitive Surgical and owns shares of Intuitive Surgical. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Exxon Mobil Corporation Stock Quote
Exxon Mobil Corporation
$94.00 (0.87%) $0.81
Chevron Corporation Stock Quote
Chevron Corporation
$159.85 (0.14%) $0.23
Intuitive Surgical, Inc. Stock Quote
Intuitive Surgical, Inc.
$238.37 (1.00%) $2.35
iShares Trust - iShares MSCI EAFE ETF Stock Quote
iShares Trust - iShares MSCI EAFE ETF
$66.76 (0.77%) $0.51
SPDR S&P 500 ETF Trust Stock Quote
SPDR S&P 500 ETF Trust
$427.10 (1.69%) $7.11

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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