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April 19 - July 7, 2018
All you need is the interest and the desire to have your investments work for you.
I am not promising you stock-market miracles.
Remember, just to stay even, your investments have to produce a rate of return equal to inflation.
Investing requires work, make no mistake about it.
Most important of all, however, is the fact that investing is fun. It’s fun to pit your intellect against that of the vast investment community and to find yourself rewarded with an increase in assets. It’s exciting to review your investment returns and to see how they are accumulating at a faster rate than your salary.
A successful investor is generally a well-rounded individual who puts a natural curiosity and an intellectual interest to work.
All investment returns—whether from common stocks or exceptional diamonds—are dependent, to varying degrees, on future events. That’s what makes the fascination of investing: It’s a gamble whose success depends on an ability to predict the future.
Traditionally, the pros in the investment community have used one of two approaches to asset valuation: the firm-foundation theory or the castle-in-the-air theory.
To add to the drama, they appear to be mutually exclusive. An understanding of these two approaches is essential if you are to...
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The firm-foundation theory argues that each investment instrument, be it a common stock or a piece of real estate, has a firm anchor of something called intrinsic value, which can be determined by careful analysis of present conditions and future prospects.
Investing then becomes a dull but straightforward matter of comparing something’s actual price with its firm foundation of value.
the classic development of the technique and particularly of the nuances associated with it was worked out by John B. Williams.
The logic of the firm-foundation theory is quite respectable and can be illustrated with common stocks.
The point is that the firm-foundation theory relies on some tricky forecasts of the extent and duration of future growth.
The firm-foundation theory is not confined to economists alone.
The castle-in-the-air theory of investing concentrates on psychic values.
The newspaper-contest analogy represents the ultimate form of the castle-in-the-air theory of price determination.
The investment, in other words, holds itself up by its own bootstraps.
In this kind of world, a sucker is born every minute—and he exists to buy your investments at a higher price than you paid for them.
The castle-in-the-air theory has many advocates, in both the financial and the academic communities.
Res tantum valet quantum vendi potest.
It is not hard to make money in the market. What is hard to avoid is the alluring temptation to throw your money away on short, get-rich-quick speculative binges. It is an obvious lesson, but one frequently ignored.
The examples I have just cited, plus a host of others, have persuaded more and more people to put their money under the care of professional portfolio managers—those who run the large pension and retirement funds, mutual funds, and investment counseling organizations.
Very well, let us then take a look at the sanity of institutions.
By the 1990s, institutions accounted for more than 90 percent of the trading volume on the New York Stock Exchange.
And yet professional investors participated in several distinct speculative movements from the 1960s through the 1990s.
Because these speculative movements relate to present-day markets, I think you’ll find this institutional tour especially useful.
It was called the tronics boom, because the stock offerings often included some garbled version of the word “electronics” in their title, even if the companies had nothing to do with the electronics industry.
As long as a company has prepared (and distributed to investors) an adequate prospectus, the SEC can do nothing to save buyers from themselves.
The SEC can warn fools, but it cannot keep them from parting with their money.
Fraud and market manipulation are different matters. Here the SEC can take and has taken strong action.
and they were called the Nifty Fifty.
These stocks were proven growers, and sooner or later the price would be justified.
“one decision” stocks.
You made a decision to buy them, once, and your portfolio-management problems were over.
The Nifty Fifty craze ended like all other speculative manias. The same money managers who had worshiped the Nifty Fifty decided that the stocks were overpriced and made a second decision—to sell. In the debacle that followed, the premier growth stocks fell completely from favor.
What electronics was to the 1960s, biotechnology became to the 1980s. The biotech revolution was likened to that of the computer, and optimism regarding the promise of gene-splicing was reflected in the prices of biotech company stocks.
Genentech, the most substantial company in the industry, came to market in 1980.
Analysts continually predicted an explosion of earnings two years out for the biotech companies and were continually disappointed. But the technological revolution was real, and even weak companies benefited under the umbrella of the technology potential.
shirts. The key to investing is not how much an industry will affect society or even how much it will grow, but rather its ability to make and sustain profits.
The ability to avoid such horrendous mistakes is probably the most important factor in preserving one’s capital and allowing it to grow.
Because the general prospects of a company are strongly influenced by the economic position of its industry, the starting point for the security analyst is a study of industry prospects.
Indeed, security analysts usually specialize in particular industry groups.
The fundamentalist hopes that a thorough study of industry conditions will produce valuable insights into factors that are ...
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A useful rule, called “the rule of 72,” provides a shortcut way to determine
how long it takes for money to double.
The catch (and doesn’t there always have to be at least one, if not twenty-two?) is that dividend growth does not go on forever, for the simple reason that corporations have life cycles similar to most living things.
And even if the natural life cycle doesn’t get a company, there’s always the fact that it gets harder and harder to grow at the same percentage rate.
Determinant 2: The expected dividend payout. The amount of dividends you receive at each payout—as contrasted to their growth rate—is readily understandable as being an important factor in determining a stock’s price.
Stocks that pay out a high percentage of earnings in dividends may be poor investments if their growth prospects are unfavorable.
