Questions:
# Does this mean that if a person has some money to invest he should completely ignore what the future trend of the business cycle may be and invest 100% of this fund the moment he has found the right stocks and located a good buying point, as indicated above?
A depression might strike right after he has made his investment.
Since a decline of 40 to 50% from its peak is not at all uncommon for even the best stock in a normal business depression, is not completely ignoring the business cycle rather a risky policy?
1. For those in the happy position of having a backlog of well-chosen investments bought comfortably below present prices.
Answers:
This risk may be taken in stride by the investor who, for a considerable period of time, has already had the bulk of his stocks placed in well-chosen situations.
If properly chosen, these should by now have already shown him some fairly substantial capital gains.
But now, either because he believes one of his securities should be sold or because some new funds have come his way, such an investor has funds to purchase something new.
UNLESS it is one of those rare years when speculative buying is running riot in the stock market and major economic storm signals are virtually screaming their warnings (as happened in 1928 and 1929), this class of investor should ignore any guesses on the coming trend of general business or the stock market.
# Instead, he should invest the appropriate funds as soon as the suitable buying opportunity arises.
2. For those NOT in the happy position of having a backlog of well-chosen investments bought comfortably below present prices.
Answers:
Perhaps this maybe the first time they have funds to invest.
Perhaps they may have a portfolio of bonds or relatively static non-growth stocks which at long last they desire to convert into shares that in the future will show them more worthwhile gains.
If such investors get possession of new funds or develop a desire to convert to growth stocks after a prolonged period of prosperity and many years of rising stock prices, should they, too, ignore the hazards of a possible business depression?
Such an investor would not be in a very happy position if, later on, he realized he had committed all or most of his assets near the top of a long rise or just prior to a major decline.
This does create a problem. However, the solution to this problem is not especially difficult - as in so many other things connected with the stock market, it just requires an extra bit of patience.
# This group should start buying the appropriate type of common stocks just as they feel sure they have located one or more of them.
# However, having made a start in this type of purchasing, they should stagger the timing of further buying.
# They should plan to allow several years before the final part of their available funds will have become invested.
By so doing, if the market has a severe decline somewhere in this period, they will still have purchasing power available to take advantage of such a decline.
If no decline occurs and they have properly selected their earlier purchases, they should have at least a few substantial gains on such holdings.
This would provide a cushion so that if a severe decline happened to occur at the worst possible time for them - which would be just after the final part of their funds had become fully invested - the gains on the earlier purchases should largely, if not entirely, offset the declines on the more recent ones.
No severe loss of original capital would, therefore, be involved.
Additional notes:
There is an equally important reason why investors who have not already obtained a record of satisfactory investments, and who have enough funds to be able to stagger their purchases should do so.
# This is that such investors will have had a practical demonstration, prior to using up all their funds, that they or their advisors are sufficient masters of investment technique to operate with reasonable efficiency.
In the event that such a record had not been attained, at least, all of an investor's assets would not be committed before he had had a warning signal to revive his investment technique or to get someone else to handle such matters for him.
# Does this mean that if a person has some money to invest he should completely ignore what the future trend of the business cycle may be and invest 100% of this fund the moment he has found the right stocks and located a good buying point, as indicated above?
A depression might strike right after he has made his investment.
Since a decline of 40 to 50% from its peak is not at all uncommon for even the best stock in a normal business depression, is not completely ignoring the business cycle rather a risky policy?
1. For those in the happy position of having a backlog of well-chosen investments bought comfortably below present prices.
Answers:
This risk may be taken in stride by the investor who, for a considerable period of time, has already had the bulk of his stocks placed in well-chosen situations.
If properly chosen, these should by now have already shown him some fairly substantial capital gains.
But now, either because he believes one of his securities should be sold or because some new funds have come his way, such an investor has funds to purchase something new.
UNLESS it is one of those rare years when speculative buying is running riot in the stock market and major economic storm signals are virtually screaming their warnings (as happened in 1928 and 1929), this class of investor should ignore any guesses on the coming trend of general business or the stock market.
# Instead, he should invest the appropriate funds as soon as the suitable buying opportunity arises.
2. For those NOT in the happy position of having a backlog of well-chosen investments bought comfortably below present prices.
Answers:
Perhaps this maybe the first time they have funds to invest.
Perhaps they may have a portfolio of bonds or relatively static non-growth stocks which at long last they desire to convert into shares that in the future will show them more worthwhile gains.
If such investors get possession of new funds or develop a desire to convert to growth stocks after a prolonged period of prosperity and many years of rising stock prices, should they, too, ignore the hazards of a possible business depression?
Such an investor would not be in a very happy position if, later on, he realized he had committed all or most of his assets near the top of a long rise or just prior to a major decline.
This does create a problem. However, the solution to this problem is not especially difficult - as in so many other things connected with the stock market, it just requires an extra bit of patience.
# This group should start buying the appropriate type of common stocks just as they feel sure they have located one or more of them.
# However, having made a start in this type of purchasing, they should stagger the timing of further buying.
# They should plan to allow several years before the final part of their available funds will have become invested.
By so doing, if the market has a severe decline somewhere in this period, they will still have purchasing power available to take advantage of such a decline.
If no decline occurs and they have properly selected their earlier purchases, they should have at least a few substantial gains on such holdings.
This would provide a cushion so that if a severe decline happened to occur at the worst possible time for them - which would be just after the final part of their funds had become fully invested - the gains on the earlier purchases should largely, if not entirely, offset the declines on the more recent ones.
No severe loss of original capital would, therefore, be involved.
Additional notes:
There is an equally important reason why investors who have not already obtained a record of satisfactory investments, and who have enough funds to be able to stagger their purchases should do so.
# This is that such investors will have had a practical demonstration, prior to using up all their funds, that they or their advisors are sufficient masters of investment technique to operate with reasonable efficiency.
In the event that such a record had not been attained, at least, all of an investor's assets would not be committed before he had had a warning signal to revive his investment technique or to get someone else to handle such matters for him.
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