Since common stocks, even of investment grade, are subject to recurrent and wide fluctuations in their prices, the intelligent investor should be interested in the possibilities of profiting from these pendulum swings. There are two possible ways by which he may try to do this:
- the way of timing and
- the way of pricing.
By timing we mean the endeavor to anticipate the action of the stock market—
- to buy or hold when the future course is deemed to be upward,
- to sell or refrain from buying when the course is downward.
By pricing we mean the endeavor
- to buy stocks when they are quoted below their fair value and
- to sell them when they rise above such value.
A less ambitious form of pricing is the simple effort to make sure that when you buy you do not pay too much for your stocks.
- This may suffice for the defensive investor, whose emphasis is on long-pull holding; but as such it represents an essential minimum of attention to market levels.
We are convinced that the intelligent investor can derive satisfactory results from pricing of either type.
We are equally sure that if he places his emphasis on timing, in the sense of forecasting, he will end up as a speculator and with a speculator’s financial results.
This distinction may seem rather tenuous to the layman, and it is not commonly accepted on Wall Street. As a matter of business practice, or perhaps of thoroughgoing conviction, the stock brokers and the investment services seem wedded to the principle that both investors and speculators in common stocks should devote careful attention to market forecasts.