Conventional Wisdom

Conventional Wisdom

The investor should be able to make up lists of bonds and preferred stocks meeting the rigorous requirements of stable income investment.

The investor should reject many stocks which sell at full prices but which do not pass his test of safety. These stocks are frequently bought nonetheless by investors who have confidence in the business and are attracted by their higher-than-standard dividend yields. There are logical objections to such stocks.

How to select the most attractive stock at their current prices?

How to recommend "those which are likely to perform best in the future"?

By intensive study of the various industries and their prospects, and by close familiarity with individual companies and their managements, an investor can undoubtedly reach conclusions of value. To a great extent these are the results of the application not of formal standards to a set of facts and figures, but rather of business judgment and foresight to an intimate knowledge of conditions in the industry and its companies.

One cannot be taught how to weigh the future. In fact, the emphasis should be placed in the opposite direction. The investor should not trust his projections of the future too far, and especially not to lose sight of the price of the security he is analysing. No matter how rosy the prospects, the price may still be too high.

Conversely, the shares of companies with unpromising outlooks may sell so low that they offer excellent opportunities to the shrewd buyer. Also, the wheel of time brings many changes and reversals. "Many shall be restored that now are fallen, and many shall Fall that now are in honor."

Advice for investor

The investor should select a group of good quality company stocks that are fairly priced suitable to the investor's financial and temperamental requirements.

1. The investor should keep away from buying inferior stocks during periods of enthusiasm and high prices.

2. Next, the investor should be encouraged to buy the selected stocks when the market level is below, rather than above, its indicated long-term normal figure.

3. Finally, the investor should always consciously avoid paying extremely high prices for good stocks.