Petronas Dagangan

The stock price has risen from MR 2.00 in 2000 to MR 4.00 in 2005.

It has risen from MR 4.00 in 2005 to MR 8.00 in 2010.

From MR 8.00 in 2010, it has risen to MR 17.00 in 2015..

From 2000 to 2015, this stock has delivered multi-bagger returns.

Between 2000 to 2015, there were 3 big dips in the price of the stock, in 2001, 2009 and recent months.

Don't forget to add the GROWING dividends!

Latest February 2015  Special Dividend  0.22 

18 Nov 2014	0.12 Dividend
21 Aug 2014	0.14 Dividend
21 May 2014	0.12 Dividend
20 Feb 2014	0.175 Dividend
14 Nov 2013	0.175 Dividend
4 Sep 2013	0.175 Dividend
10 Jun 2013	0.175 Dividend
7 Mar 2013	0.175 Dividend
12 Dec 2012	0.175 Dividend
4 Sep 2012	0.175 Dividend
4 Jun 2012	0.175 Dividend
8 Mar 2012	0.15 Dividend
7 Dec 2011	0.15 Dividend
24 Aug 2011	0.15 Dividend
1 Aug 2011	0.35 Dividend
9 Dec 2010	0.30 Dividend
24 Feb 2005	2: 1 Stock Split
* Close price adjusted for dividends and splits.

3 Aug 2010	0.15 Dividend
7 Dec 2009	0.15 Dividend
5 Aug 2009	0.33 Dividend
10 Dec 2008	0.12 Dividend
1 Aug 2008	0.33 Dividend
14 Dec 2007	0.12 Dividend
12 Dec 2005	0.05 Dividend
17 Aug 2005	0.10 Dividend
30 Nov 2004	0.10 Dividend
5 Aug 2004	0.20 Dividend
10 Dec 2003	0.20 Dividend
23 Jul 2003	0.10 Dividend
22 Jul 2003	0.10 Dividend
* Close price adjusted for dividends and splits.

Comments:  5.2.2015

Revenue - Lower due to Decrease in Sales volume

Group Operating Profit  -  Lower due to lower gross margin and higher operating expenditure.

1.  Lower gross profit margin - Lower due to higher product cost due to unfavourable timing differences of the Mean of Platts Singapore ("MOPS" prices compared to corresponding quarter last year.

2.  Higher operating expenditure - mainly attributed to manpower expenses, ICT maintenance charges, advertising and promotion and net loss on foreign currency as US dollar weakened against Malaysian Ringgit during the current period compared to net gain on foreign currency during the corresponding period last year.

Increase in revenue - due to higher selling price 

Decrease in revenue - due to decrease in sales volume, despite a higher average selling price.


The downward trend in global oil prices has an adverse impact on PDB's margins.  

PDB's business is expected to be challenging as long as the downward trend is expected to continue.


How to defend its overall market leadership position?

1. Grow its business domestically - further strengthening its brand, sweating existing assets and continuosly enhancing customer relationship management.

2.  Continue its cost optimisation efforts - enhancement of supply and distribution efficienecy, improvement of terminal operational excellence to further improve cost of operations.



NOTE:  

Results of PDB will be affected adversely when:

1.  US currency is weakening.  

2.  The global oil price is trending downwards.    


Do you think the fundamentals of PDB are permanently damaged or they are facing a temporary period of difficulties or challenges?   


How can PDB delivers better results?

1.  Increasing its volume sold.
2.  Lower average selling prices may lead to increase in volume sold.
3.  Operational efficiency - cost and expense minimisation - leading to increasing profit margins.
4.  When US dollar is appreciating or getting stronger.
5.  When global oil price is stabilised or increasing in price trend.

Amongst the millions of questions regarding financial matters, the most popular one is undoubtedly “How do I save my money?”. Here are 3 common ways that could help you save a sizable amount for when it’s time to retire.

1) Contribute to EPF, do NOT withdraw

For Malaysians, EPF is undoubtedly the easiest way to save your money. Your personal contribution of 11% aside, your employer’s mandatory contribution of 13% (for employees earning less than RM5,000 monthly salaries) makes it a total of 24% of your monthly wages saved under your name each and every month.

To top it off, EPF’s average return of 5% per year is significantly higher than any fixed deposit interests in the market right now.

Tips: Firstly, get employed at a company that contributes to EPF. Try to keep your money in your EPF account for as long as possible because there simply aren’t any other bank deposits with higher interest rates in the market. If you can help it, DO NOT use any of your EPF sub accounts to pay for your home or buy a computer, so you can take full advantage of EPF’s high interest rate to maximize your returns.

2) Put your money aside the good old fashion way

Saving your money requires determination and discipline. If you aren’t already doing so, try putting aside a small percentage of your salary every month-end and save it in a separate bank account, preferably one without any easy withdrawal facilities (eg. ATM).

When you have a moderate amount, transfer the money to a high-interest fixed deposit account so it can generate greater interests whilst stopping you from accessing the funds every time you feel like getting a new handphone or a new pair of shoes.

To find the best fixed deposits in the market right now, check out our fixed deposit comparison table.

Tips: Like many other things in life, saving is an endeavour that many find hard to adopt especially in the beginning. To ease yourself into your money-saving journey, you may wish to start off with a moderate amount (say 5-10% of your wages) so that it does not affect your cash flow to the extend of making you give up altogether. Over time, you can try to increase the amount as the act of saving becomes a habit. Also, when it comes to saving, it helps to start as young as possible so you can reap the benefits of compound interest over the long run.

3) Use your money to invest in something

If you have moderate tolerance to risk, are not close to retirement age and have a sizable amount in your savings or fixed deposit account, you’ll probably want to consider using some of the monies you have for investment purposes.

Be it in shares, gold or real estate; investment is a great way to save even MORE money because the potential returns are usually much greater than, say, putting your money into a bank. The downside, however, is that investment involves RISKS – the risk of non-performance from your investments, or in certain cases, the risk of total evaporation of value for your investments caused by adverse market conditions.

Tips: Not all categories of investments are born equal, so you are advised to do your homework well before you engage with any kind of investment. For example: properties are considered medium-risk investments; they generally enjoy consistent growth but they also have low liquidity (i.e. not easily turned to cash). Shares, on the other hand, are considered high-risk investments; they are prone to fluctuations in value caused by volatile market, which basically means you could potentially GAIN a lot or LOSE a lot. Whichever form of investment you choose, it is best to make a genuine effort to learn about it before you commit.

Love this article? You might also wish to read about the importance of diversification in investment.

How To Save Money: 3 Common Methods

By Ching . 3 April 2013 . Money Management

The two things investors must do now, according to the Nobel laureate.

Shiller's back, and he has more depressing news

CNBC
By Alex Rosenberg
Feb 14, 2015 2:08 PM

The two things investors must do now, according to the Nobel laureate.

Nobel Prize-winning economist Robert Shiller has a grim message for investors: Save up, because in the years ahead, assets aren't going to give you the type of returns that you've become accustomed to. In his third edition of "Irrational Exuberance," which will drop later this month, the Yale professor of economics warns about high prices for stocks and bonds alike. "Don't use your usual assumptions about returns going forward." Shiller recommended to investors in a Thursday interview on CNBC's " Futures Now ." He says that stock valuations look rich. In fact, Shiller's favorite valuation measure, the cyclically adjusted price-earnings ratio (which compares current prices to the prior 10 years' worth of earnings) is "higher than ever before except for the times around 1929, 2000, and 2008, all major market peaks," he writes in his new preface to the third edition. "It's very hard to predict turning points in markets," Shiller said on Thursday. His CAPE measure of the S&P 500 (CME:Index and Options Market: .INX) "could keep going up. ... But it's definitely high. By historical standards, it's up there." Meanwhile, Shiller said that bond yields, which move inversely to prices, "can't keep trending down" and "could [reach] a major turning point in coming years." It's no surprise, then, that Shiller expects little in the way of asset returns-meaning Americans will have to rely more heavily on the piggy bank.

Shiller warns bond investors: Beware of 'crash'! Given the current state of the stock and bond markets, "you might want to save more. A lot of people aren't saving enough. And incidentally, people are living longer now and health care is improving, you might end up retired for 30 years-people are not really preparing for that," he said. The other pillar of his advice is a classic tenant of responsible investing, with a global twist. "Diversify, because that helps reduce risk," Shiller said. "And you can diversify outside the United States. Some people would never invest in Europe-I think that's a mistake." Shiller adds that emerging markets can also provide attractive values. And indeed, valuations in much of the world are far lower than in the United States, given that investors are more optimistic about economic prospects in America than in nearly any other country. But perhaps people shouldn't base their investing decisions quite so heavily on predictions. "The future is always coming up with surprises for us, and the best way to insulate yourself from these surprises is to diversify," Shiller said.

PE multiple is rooted in discounting theory

Valuation using multiples has its fundamentals rooted in discounting.  It is a shortcut to valuation.

In this method, all factors considered in a general DCF including cost of capital and growth rates are compressed in one figure, namely the multiple figure.  Multiples are also market-based.


Let's look at PE in detail.

PE =  Price / Earnings

Price
= PE x Earnings
= Earnings / (1/PE)


Compare this with the time-value of money equation:

PV = FV / (1+r)^n

or the dividend growth model:

PV = Div1 / (r-g)


Thus a PE multiple of 5 should nearly imply a discount rate of 20%.

The same goes for other kinds of multiples used in the financial markets:
EV/EBITDA multiples
EV/Sales
Price/Cash flow.

They are all short cuts for discounting.  The EBITDA, Sales and Cash flows are all proxies of the free cash flow.

DEFINITION OF 'DISCOUNTED CASH FLOW - DCF'

A valuation method used to estimate the attractiveness of an investment opportunity. Discounted cash flow (DCF) analysis uses future free cash flow projections and discounts them (most often using the weighted average cost of capital) to arrive at a present value, which is used to evaluate the potential for investment. If the value arrived at through DCF analysis is higher than the current cost of the investment, the opportunity may be a good one.

Calculated as:

Also known as the Discounted Cash Flows Model.

Reference:  Finance for Beginners  by Hafeez Kamaruzzaman

SECRET MILLIONAIRE: Petrol station attendant leaves behind millions

05 February 2015 16:03

Perhaps the only clue that Ronald Read, a Vermont gas station attendant and janitor who died last year at age 92, had been quietly amassing an US$8 million (S$10 million) fortune was his habit of reading the Wall Street Journal, his friends and family say.

It was not until last week that the residents of Brattleboro would discover Read's little secret. That's when the local library and hospital received the bulk of his estate, built up over the years with savvy stock picks.

"Investing and cutting wood, he was good at both of them," his lawyer Laurie Rowell said on Wednesday, noting that he read the Journal every day.

Most of those who knew Read, described as a frugal and extremely private person, were aware that he could handle an axe. But next to no one knew how well he was handling his financial portfolio.

Read, the first person in his family to graduate from high school, dressed in worn flannel shirts and spent his free time scavenging for fallen branches for his home wood stove. He drove a second-hand Toyota Yaris.

"You'd never know the man was a millionaire," Rowell said. "The last time he came here, he parked far away in a spot where there were no meters so he could save the coins."

Read graduated from Brattleboro High School in 1940 and during World War II served in North Africa, Italy and the Pacific theatre. Returning home, he worked at Haviland's service station and then as a janitor at a JCPenney store, marrying a woman with two children.

Before his death on June 2, 2014, Read's only indulgence was eating breakfast at the local coffee shop, where he once tried to pay his bill only to find that someone had already covered it under the assumption he did not have the means, Rowell said.

Last week, Brooks Memorial Library and Brattleboro Memorial Hospital each received their largest bequests ever. Read left US$1.2 million to the library, founded in 1886, and US$4.8 million to the hospital, founded in 1904.

"It was a thunderbolt from the sky," said the library's executive director, Jerry Carbone. While a surprise, he said the gift made sense once he learned more about the quiet, shy library patron appropriately named Read.

"Being a self-made man with his investments, he recognised the transformative nature of a library, what it can do for people," Carbone said.

Read's stepchildren survive him but were not immediately available for comment. - Asiaone

Full article: http://www.malaysia-chronicle.com/index.php?option=com_k2&view=item&id=455171:secret-millionaire-petrol-station-attendant-leaves-behind-millions&Itemid=4#ixzz3QsFZjRIf

Staying Rational in a Falling Market, using rational price or rational value approach

Read the Market's Long-Term Performance

By Ellis Traub | September 16, 2008

Those "buy-and-watch" physician-investors have experienced one of the most unsettling periods in their investment lives. They've seen the value of investments soar to heights that would have cast a shadow on Icarus, and then plummet to depths that few of us have ever seen. These extraordinary bubbles and busts have tested the faith that many have in fundamental investment principles and likely caused some to abandon their discipline. Many who stayed the course are still questioning whether they should have been able to tell when the market was going to take its dive.

KEEP PERSPECTIVE

Of course, the best way to keep your mind at ease through times like these is perspective. Those who are thoroughly grounded in long-term thinking know that these kinds of events are transient and will eventually work out. Patience and vigilance are the only attributes an investor needs to get through them. A new approach is found in rational price or rational value, which pertains to a portfolio whose stocks have been priced at their rational prices.

There's no question that the most recent bubble was the product of what Federal Reserve Chairman Alan Greenspan termed "irrational exuberance."We now know that in the course of a year, the price of a stock can go up or down, departing as much as 50% from the average price. The distortion that applies to the price is also applicable to the price/earnings (P/E) ratio, which is a function of the price. Viewing the P/E ratio as merely a rate you pay for a dollar's worth of earnings makes perfect sense.

During the course of a 5-year cycle, the market's P/E ratio will typically make even greater departures from the norm. And several times during a century, excursions from the average can be extreme and either delightful or painful.

The significant thing for physician-investors to remember is this: If the price is truly driven by earnings in the long term, and successful methodology says that it is, then deviations in the P/E ratio, the "rate," must be caused by something other than earnings. If it weren't, the price and P/E ratio would always march in absolute lock step with the most recently reported earnings per share.

KNOW THE HUMAN FACTOR

What is that mysterious force that causes the price and P/E ratio to vary up and down, sometimes by huge amounts? It's nothing more than the collective perception or opinion about the effect that the daily host of media reports, stories, current events, earnings forecasts, speculation, etc, will have on the economy, the market, an industry, or a company. It's fear, greed, paranoia, and euphoria that uninformed or over-informed speculators act on. These change every minute; reported earnings do not.

How, then, should you compensate for these fleeting, disconcerting, and often misleading trends? We recognize that the daily, short-term fluctuations in the P/E ratio are not important when compared to earnings over the long term. This allows us to calculate a rational price for each of our stocks and a rational value for our holdings.

Simply stated, the rational price tells what the price of our stock would be if the public's decisions to buy or sell were governed by earnings and not by all the unpredictable factors. In effect, the rational price answers the question, "If the public really had it together, what would they be paying for my stocks?"

To calculate a price, use the "signature P/E ratio" and earning per share. The simplest way to do this is to multiply a company's 10-year average P/E ratio by the most recent trailing 12 months' earnings. Once you've calculated your rational prices, you can analyze your portfolio and calculate its rational value (ie, the sum of the products of the number of shares and their rational prices).

The benefit to be derived from this exercise is significant. It puts whatever irrationality Mr. Market might be currently laboring under into perspective and gives you a view of just how irrational he is at any time. It's a way to quantify just how right you are compared to the rest of the world, which goes a long way toward providing comfort when times are bad, and tempering euphoria when they're good. And, if nothing else, it may be just the encouragement a physician-investor needs to stay the course. That may be the best medicine of all.

Ellis Traub, author of Take Stock: A Roadmap to Profiting from Your First Walk Down Wall Street (Dearborn; 2000), is chairman of the Inve$tWare Corp (www.investware.com), manufacturers of stock analysis software. He welcomes questions or comments at 954-723-9910, ext 222, or etraub@investware.com.

- See more at: http://www.hcplive.com/publications/pmd/2003/53/2654#sthash.4g85ciyZ.dpuf

Financial Efficiency - Is the stockholders' money (capital) working in forms most suitable to their interest.

Concept of Financial Efficiency

A company's management may run the business well and yet not give the outside stockholders the right results for them, because its efficiency is confined to operations and does not extend to the best use of the capital.

The objective of efficient operation is to produce at low cost and to find the most profitable articles to sell.

Efficient finance requires that the stockholders' money be working in forms most suitable to their interest.  

This is a question in which management, as such, has little interest.


$$$$$


Actually, it almost always wants as much capital from the owners as it can possibly get, in order to minimize its own financial problems.

Thus the typical management will operate with more capital than is necessary, if the stockholders permit it - which they often do.

It is not to be expected that public owners of a large business will strive as hard to get the maximum use and profit from their capital as will a young and energetic entrepreneur.

We are not offering any counsels of perfection or suggesting that stockholders should make exacting demands upon their superintendents.

We do suggest, however, that failure of the existing capital to earn enough to support its full value in the marketplace is sufficient justification for a critical spirit on the part of the stockholders.

Their inquiry should then extend to the question of whether the amount of capital used is suited to the results and to the reasonable needs of the business.


$$$$$


For the controlling stockholders, the retention of excessive capital is not a detriment, especially since they have the power to draw it out when they wish.

As pointed out above, this is one of the major factors that give insiders important and unwarranted benefits over outsiders.

If the ordinary public stockholders hold a majority of the stock, they have the power - buy use of their votes - to enforce appropriate standards of capital efficiency in their own interest.

To bring this about they will need more knowledge and gumption than they now exhibit.

Where the insiders have sufficient stock to constitute effective voting control, the outside stockholders have no power even if they do have the urge to protect themselves.

To meet this fairly frequent situations there is need, we believe, for a further development of the existing body of law defining the trusteeship responsibilities of those in control of a business toward those owners who are without an effective voice in its affairs.


Benjamin Graham
The Intelligent Investor

Portfolio Policy for the Enterprising Investor (Benjamin Graham)

The activities characteristics of the enterprising investor may be classified under four heads:

1.  Buying in low market and selling in high markets
2.  Buying carefully chosen "growth stocks"
3.  Buying bargain issues of various types
4.  Buying into "special situations"

Benjamin Graham
The Intelligent Investor

Quote 

"The purpose of this book is to supply, in a form suitable for laymen, guidance in the adoption of an investment policy.  Comparatively little will be said here about the technique of analysing securities; attention will be paid chiefly to investment principles and investors' attitudes."

"That risk cannot be avoided.  But by bearing it clearly in mind we may succeed in reducing it." 

 Related:

### Attractive Buying Opportunities arise through a Variety of Causes

Lower oil prices and slowing global growth outside the US.

No changes in GDP growth upgrade following plunging oil prices: Merrill Lynch

BY RUPA DAMODARAN - 23 JANUARY 2015 @ 11:25 PM

KUALA LUMPUR: Lower oil prices have yet to result in any sizeable goss domestic product (GDP) growth upgrade for emerging Asia, partly because of slowing global growth outside the US, said Bank of America Merrill Lynch.

“Lower oil prices have, however, improved the trade surplus significantly, supporting the current account balance and forex reserves positions.”

The research house said lower oil prices have also resulted in a sharp drop in inflation, particularly in Thailand, Philippines and India, which has allowed central banks to stay accommodative.

The Reserve Bank of India cut policy rates last week as inflation pressures and expectations fell sharply, while markets are starting to price in possible cuts in Thailand and South Korea.

“Emerging Asian countries will likely see a boost to GDP growth in the range of 10 basis points to 45 basis points with every 10 per cent fall in oil prices, if the oil price drop was purely a supply shock.”

Big beneficiaries are consumers as fuel prices at the pump fall, it said.

Savings from reduced fuel costs could be channeled to investments, which for example, is showing in Indonesia's government doubling of capital spending.

”Malaysia, is however an exception and will see overall GDP growth slow with lower oil, given its heavy reliance on oil & gas revenues.”

The government downgraded the growth outlook and raised its fiscal deficit projections this week.

“We remain cautious on the fiscal and current account outlook, given the heavy fiscal dependence on oil and downward trajectory of LNG prices in the coming months.”

The research house has downgraded the average oil price to US$52 for 2015, with oil prices likely to spiral to US$31 per barrel at the end of the first quarter before recovering.

“Asia’s oil windfall will likely see a significant shift in the relative positions of sovereign wealth funds. Oil and gas-related sovereign wealth funds (US$4.3 trillion) – which account for about 60 per cent of total sovereign wealth funds -- will likely see their size stagnate or erode on falling oil prices.”

Falling oil prices will likely dampen the overall growth of sovereign funds, as a large proportion is oil-related.

Norway's government pension fund (US$893 billion), Abu Dhabi Investment Authority (US$773 billion) and Saudi Arabia's SAMA (US$753 billion) are the three largest sovereign funds in the world, and are all oil-related.

“Recycling of Asia-dollars might partly replace the recycling of petrodollars.”

Asian sovereign wealth funds (US$2.8 trillion) account for about 39 per cent of total sovereign wealth funds, and will likely see their size increase at a faster clip.

Sovereign wealth funds of China (CIC & SAFE), Hong Kong (HKMA), Singapore (GIC & Temasek) and Korea (KIC) rank in the Top-15 globally.

http://www.nst.com.my/node/70742

Approach to Convertible Issues

An illustration on convertible issue

The fine balance between what is given and what is withheld in a standard-type convertible issue is well illustrated by the extensive use of this type of security in the financing of American Telephone & Telegraph Company.

Since 1913 the company has sold at least seven separate issues of convertible bonds, most of them through subscription rights to stockholders.

The convertible bonds had the important advantage to the company of bringing in a much wider class of buyers than would have been available for a stock offering, since the bonds are popular with many financial institutions which possess huge resources but some of which are not permitted to buy stocks.

The interest return on the bonds has generally been less than half the corresponding dividend yield on the stock - a factor which was calculated to offset the prior claim of the bondholders.

Since the company has been able to maintain its dividend without change for many years, the result has been the eventual conversion of all the older convertible issues into stock.  

Thus the buyers of these convertibles have fared well through the years - but not quite so well as if they had bought the capital stock in the first place.

This example establishes the soundness of American Telephone & Telegraph, but not the intrinsic attractiveness of convertible bonds.

To prove them sound in practice we should need to have a number of instances in which the convertible worked out well even though the common stock proved disappointing.  

Such instances are not easy to find.


$$$$$


Advice by Benjamin Graham on convertibles

Our general attitude toward new convertible issues is thus a mistrustful one.

We mean here, as in other similar observations, that the investor should look more than twice before he buys them.

After such hostile scrutiny he may find some exceptional offerings that are too good to refuse.

The ideal combination, of course, is a strongly secured convertible, exchangeable for a common stock which itself is attractive, and at a price only slightly higher than the current market.  

Every now and then a new offering appears that meets these requirements.

By the nature of the securities markets, however, you are more likely to find such an opportunity in some older issue which has developed into a favorable position rather than in a new flotation.

(If a new issue is a really strong one, it is not likely to have a good conversion privilege.)


Benjamin Graham
The Intelligent Investor

Most security buyers obtain advice without paying for it specifically. You and your financial advisors..

Most security buyers obtain advice without paying for it specifically.

They should be wary of all persons, whether customers' brokers or security salesmen, who promise spectacular income or profits.

This applies both to the selection of securities and to guidance in the elusive art of trading in the market.



For defensive investors

Defensive investors, as we have defined them, will not ordinarily be equipped to pass independent judgement on the security recommendations made by their advisers.

But they can be explicit - and even repetitiously so - in stating the kind of securities they want to buy.

If they follow our prescription, they will confine themselves to US Savings Bonds and the common stocks of leading corporations purchased at levels that are not high in the light of experience and analysis.

The security analyst of any reputable stock exchange house can make up a suitable list of such common stocks and can certify to the investor whether or not the existing price level is a reasonably conservative one as judged by past experience.



For aggressive investors

The aggressive investor will ordinarily work in active co-operation with his advisers.

He will want their recommendations explained in detail and he will insist on passing his own judgment upon them.

This means that the investor will gear his expectations and the character of his security operations to the development of his own knowledge and experience in the field.  

Only in the exceptional case, where the integrity and competence of the advisers have been thoroughly demonstrated, should the investor act upon the advice of others without understanding and approving the decision made.  

The relationship between the investment banker and the investor

Investment Bankers

The term "investment banker" is applied to a firm which engages to an important extent in originating, underwriting, and selling new issues of stocks and bonds.  (To underwrite means to guarantee to the issuing corporation or other issuer, that the security will be fully sold.)

Much of the theoretical justification for maintaining active stock markets, notwithstanding their frequent speculative excesses, lies in the fact that organized security exchanges facilitate the sale of new issues of bonds and stocks.  

The relationship between the investment banker and the investor is basically that of the salesman to the prospective buyer.



The investment banker and the financial institutions (banks and insurance companies)

For many years the great bulk of the new offerings has consisted of bond issues which were purchased in the main by financial institutions such as banks and insurance companies.  

In this business the security salesmen have been dealing with shrewd and experienced buyers.  

Hence any recommendations made by the investment bankers to these customers has had to pass careful and skeptical scrutiny.

Thus these transactions are almost always effected on a businesslike footing.  



The investment banker and the individual security buyer

But a different situation obtains in the relationship between the individual security buyer and the investment banking firms, including the stockbrokers acting as underwriters.

Here the purchaser is frequently inexperienced and seldom shrewd.

He is easily influenced by what the salesman tells him, especially in the case of common-stock issues, since often his unconfessed desire in buying is chiefly to make a quick profit.  

The effect of all this is that the public investor's protection lies less in his own critical faulty than in the scruples and ethics of the offering houses.  

It is a tribute to the honesty and competence of the underwriting firms that they are able to combine fairly well the discordant roles of adviser and salesman.

But it is imprudent for the buyer to trust himself to the judgment of the seller.

The bad results of this unsound attitude show themselves recurrently in the underwriting field and with notable effect in the sale of new common-stock issues during periods of active speculation.

The intelligent investor will pay attention to the advice and recommendations received from investment banking houses, especially those known to him to have an excellent reputation; but he will be sure to bring sound and independent judgment to bear upon these suggestions - either his own, if he is competent, or that of some other type of adviser.



Benjamin Graham
Intelligent Investor

The preferred stocks to own - Growth Stocks at suitable prices. Do not overpay to own them.

The stock of a growing company, if purchasable at a suitable price, is obviously preferable to others.

The choice between the attractive issue that turns out well and the one that does poorly is by no means easy to make in the growth-stock field.

However, superior results may be obtained in this field if the choices are competently made.  

Even with careful selection, some of the individual issues may fare relatively poorly. 

Formula Timing - Buying in low markets and selling in high markets. No simple and fool-proof formula. Select a ins and outs formula timing plan that is simple and convenient .

Let's look at the possibilities and limitations of a policy of entering the market when it is depressed and selling out in the advanced stages of a boom.

This bright idea appeared feasible from a first inspection of the market chart covering the gyrations of the past fifty years.

But closer study indicated that no simple and fool-proof formula could be counted upon to work out in the future.  

For example, the history of the Dow-Jones Industrial Average suggests that it should be possible to buy at 140 during the next few years and sell out at 280 later.

But this is only an indication and not a true prediction.

Nor can we tell whether the probability of its working out is good enough to justify the basing of an investment policy upon it.

$$$$$

The various formula timing plans, which have come into prominence in recent years, all represent a compromise attempt to deal with this probability.

Instead of planning to do all the buying at 140 - or some similar price - and all the selling at 280, the formula user buys at various stages on the downside and sells in installments on the upside.

By this means he can obtain some benefit from market fluctuations, even if they do not fall precisely within the range suggested by the chart.

Thus his formula assures him at least some profit if the future performance of the market is only reasonably close to that of the past.

$$$$$

A simple application of this idea would be to sell 10 percent of your holdings when the market advances 10 per cent above a chosen base or central level; then to sell 20 per cent of the remainder when it advances another 10 per cent and so on.

Repurchases would be made after the market had declined to the central level, and on some similar schedule.
Following this plan, you would have sold all your stocks if and when the market level reached double the base figure, and you would then have realized a profit of 37 per cent above the base.

You can apply these ins and outs of formula timing plans, using various types of plans, to calculate their possible results, using the record of your own actual operations and also applied to hypothetical or imaginary funds.

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There is some danger here for both writers and investors to lose themselves in a maze of alternative procedures.  

It is well to bear certain basic facts in mind.  No one plan has a priori or guaranteed advantage over any other.

The relative results of various plans will depend on how well each happens to fit the market fluctuations of the future.

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1.  The more certain the investor is that the range of future fluctuations will duplicate the past, the more justified he is in concentrating his buying close to the bottom line of the Dow-Jones performance chart and his selling not much below the top line.  

2.  But since we lack any proof that the past range must determine that of the future, most of us will prefer a compromise formula by which buying and selling is done in various stages below and above the indicated median level.

3.  So too, there is no assured advantage as between a plan to sell 100 per cent of our stock holdings by the time a designated high point is reached and a plan that assures retention of some stocks under all circumstances.  The latter in some measure protects against an inflationary breakout of a permanent character into a much higher band of fluctuation than we have experienced hitherto.

But like all the other choices in formula timing plans the wisdom of this one depends not on reasoning but on results.

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The sovereign virtue of all formula plans lies in the compulsion they bring upon the investor to sell when the crowd is buying and to buy when the crowd lacks confidence.  

If the reader adopts a formula plan today and it happens to turn out badly - because the market chances to soar upwards to unexpected heights and does not return - it will still prove to have been worth while.

For the principle and the psychology will remain sound and applicable to the markets of the future, however far removed their middle range may be from the line of the past.

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Since all the rest is a matter of detail or of guesswork, we strongly advice to "formula investors" that they select a plan that is simple and convenient in their circumstance.



Benjamin Graham
Intelligent Investor