Y ou will truly profit from investing only when you have a clear appreciation of its principles and realities. Once you understand these, you will be better able to keep a cool mind during the inevitable ups and downs -- and reap riches by investing with controlled risks. This fundamental law of finance is supported by centuries of historical data.

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US stocks have provided a compounded rate of return of 11 per cent per year sincebut this return came only at substantial risk to investors: Higher risk is the price one pays for more generous returns. Your actual risk in stock and bond investing depends on the length of time you hold your investment. There was no dependability of earning an adequate return in any single year. In other words, by holding stocks for relatively long periods of time, you can be reasonably sure of earning the generous rates of return available from common stocks.

JP Morgan once had a friend who was so worried about his stock holdings that he could not sleep at night. Morgan advised him to 'sell down to his sleeping point'.

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Every investor must decide the trade-off he or she is willing to make between eating well and sleeping well. Your tolerance for risk informs the types of investment -- stocks, bonds, money-market accounts, property -- that you make.

So what's your sleeping point? Dollar-cost averaging simply means investing the same fixed amount of money in, for example, the shares of a mutual fund at regular intervals -- say, every month or quarter -- over a long period. It can reduce but not avoid the risks of equity investment by ensuring that the entire portfolio of stocks will not be purchased at temporarily inflated prices. Stock prices are anchored to 'fundamentals' but the anchor is easily pulled up and then dropped in another place.

The most important fundamental getting rich through stock market on prices is the level and duration of the future growth of corporate earnings and dividends.

But earnings growth is not easily estimated, even by market professionals. In times of optimism, it is easy to convince yourself that your favorite company will enjoy substantial and persistent growth over an extended period. In times of pessimism, many security analysts will not project any growth that is not 'visible' and hence will estimate only modest growth rates for the corporations they follow.

Given that expected growth rates and the calendar spread contract the market is willing to pay for growth can both change rapidly on the basis of market psychology, the concept of a firm intrinsic value for shares must be an elusive will-o-the-wisp.

If you buy stocks directly, confine your purchases to companies that appear able to sustain above-average earnings growth for at least five years and which can difference between stock option and warrants bought at reasonable price-earnings multiples.

As difficult as it may be, picking stocks whose earnings grow is the name of the game.

The purchaser of a stock whose earnings begin to grow rapidly has a potential double benefit: Never pay more for a stock than can reasonably be justified by getting rich through stock market firm foundation of value. Although I am convinced that you can never judge the exact intrinsic value of a stock, I do feel that you can roughly gauge when a stock seems to be reasonably priced.

Buy stocks with the kinds of stories of anticipated growth on which investors can build castle in the air. The key to success is being where other investors will be, several months before they get there.

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Ask yourself whether the story about your stock is one that is likely to catch the fancy of the crowd. Frequent switching between stocks accomplishes nothing but subsidizing your broker and increasing your tax burden when you do realize gains.

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My own philosophy leads me to minimize trading as much as possible. I am merciless with the losers, however. With few exceptions, I sell before the end of each calendar year any stocks on which I have a loss. The reason for this is that losses are deductible up to certain amounts for tax purposes, or can offset gains you may already have taken. Thus, taking losses can actually reduce the amount of loss by lowering your tax bill.

Most investors will be better off buying index funds funds that buy and hold all the stocks in a broad stock market index rather than buying individual stocks. Index funds provide broad diversification, low expenses and are tax efficient. Index funds regularly beat two-thirds of the actively managed funds with which they compete. Money-Making Lessons from of the World's Expertspublished by Vision Books.

Dr Malkiel is the Chemical Bank Chairman's Professor of Economics at Princeton University and author of the celebrated investment classic, A Random Walk Down Wall Street.