THERE is widespread agreement among economists that abuse of credit constitutes one of the chief unwholesome elements in business booms and is mainly responsible for the ensuing crash and depression.
The distinction between investment and speculation in common stocks has always been a useful one and its disappearance is cause for concern.
For 99 issues out of 100 we could say that at some price they are cheap enough to buy and at some price they would be so dear that they would be sold.
The underlying principles of sound investment should not alter from decade to decade, but the application of these principles must be adapted to significant changes in the financial mechanisms and climate.
As in roulette, same is true of the stock trader, who will find that the expense of trading weights the dice heavily against him.
Most businesses change in character and quality over the years, sometimes for the better, perhaps more often for the worse. The investor need not watch his companies' performance like a hawk; but he should give it a good, hard look from time to time.
The determining trait of the enterprising (or active, or aggressive) investor is his willingness to devote time and care to the selection of securities that are both sound and more attractive than the average.
Observation over many years has taught us that the chief losses to investors come from the purchase of low-quality securities at times of good business conditions. The purchasers view the good current earnings as equivalent to 'earning power' and assume that prosperity is equivalent to safety.
Although there are good and bad companies, there is no such thing as a good stock; there are only good stock prices, which come and go.
Nearly everyone interested in common stocks wants to be told by someone else what he thinks the market is going to do. The demand being there, it must be supplied.
Confusing speculation with investment is always a mistake.
Price statistics show clearly that instability in raw-material prices is a prime cause of instability of other prices.
Evidently stockholders have forgotten more than to look at balance sheets. They have forgotten also that they are owners of a business and not merely owners of a quotation on the stock ticker. It is time, and high time, that the millions of American shareholders turned their eyes from the daily market reports long enough to give some attention to the enterprises themselves of which they are the proprietors, and which exist for their benefit and at their pleasure.
Speculators often prosper through ignorance; it is a cliché that in a roaring bull market knowledge is superfluous and experience is a handicap. But the typical experience of the speculator is one of temporary profit and ultimate loss
We have been trying to point out that this concept of an indefinitely favorable future is dangerous, even if it is true; because even if it is true you can easily overvalue the security, since you make it worth anything you want it to be worth. Beyond this, it is particularly dangerous too, because sometimes your ideas of the future turn out to be wrong. Then you have paid an awful lot for a future that isn't there. Your position then is pretty bad.
Individual security bargains may be located by the process of security analysis practically at any time. They can be bought with good overall results at all periods except when the general market itself is clearly in a selling range for investors. They show up to best advantage during the years in which the market remains in a relatively narrow and neutral area.
Even with a margin of safety in the investor's favor, an individual security may work out badly. For the margin guarantees only that he has a better chance for profit than for loss - not that loss is impossible. But as the number of such commitments is increased the more certain does it become that the aggregate of the profits will exceed the aggregate of the losses.
The world has not learned the technique of balanced expansion without the resultant commercial and financial congestion.
The people of the United States will not tolerate another deep depression that arises not from any lack of natural resources, productive capacity or man and brain power, but solely from imperfections in the functioning of the system of finance capitalism.
Before you place your financial future in the hands of an adviser, it's imperative that you find someone who not only makes you comfortable but whose honesty is beyond reproach.
The investor with a portfolio of sound stocks should expect their prices to fluctuate and should neither be concerned by sizable declines nor become excited by sizable advances. He should always remember that market quotations are there for his convenience, either to be taken advantage of or to be ignored.
Traditionally the investor has been the man with patience and the courage of his convictions who would buy when the harried or disheartened speculator was selling.
Stocks can be dynamite.
The only thing you should do with pro forma earnings is ignore them.
The existence of such a war chest might go far to strengthen our prestige and frighten off any would be assailant.
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