The profit from selling an investment for more than its purchase price — the difference between the selling price and the original cost basis.
Deeper Explanation
Capital gains are realised (when the asset is sold) or unrealised (while still holding). Taxes typically apply only to realised gains, which is why long-term investors often prefer to hold rather than sell: unrealised gains compound tax-deferred. Buffett has described the value of deferred capital gains as an interest-free loan from the government — the longer you hold a compounding asset, the more valuable the tax deferral becomes. Capital gains are distinct from income returns (dividends, interest) — together they form total return.
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