The Investor and Market Fluctuations

The investors in these assets need not take market fluctuations into account.

1. To the extent that the investor’s funds placed in high-grade bonds of relatively short maturity – say, of seven years or less – will not be affected significantly by changes in market prices, and need not take them into account.
2. This applies also to his holdings of US savings bonds, which he can always turn in at his cost price or more.

The investors in these assets need to take market fluctuations into account.

1. His longer-term bonds may have relatively wide price swings during their lifetimes, and
2. his common-stock portfolio is almost certain to fluctuate in value over any period of several years.
3. The investor should know about these possibilities and should be prepared for them both financially and psychologically.
4. He will want to benefit from changes in market levels –

• certainly through an advance in the value of his stock holdings as time goes on, and
• perhaps also by making purchases and sales at advantageous prices.
• This interest on his part is inevitable, and legitimate enough. But it involves the very real danger that it will lead him into speculative attitudes and activities.
• It is easy for us to tell you not to speculate; the hard thing will be for you to follow this advice.

Let us repeat what we said at the outset: If you want to speculate do so with your eyes open, knowing that you will probably lose money in the end; be sure to limit the amount at risk and to separate it completely from your investment program.

Ref: Intelligent Investor by Benjamin Graham