The big profits go to the intelligent, careful, and patient investor, not to the reckless and overeager speculator. Conversely, it is the speculator who suffers the losses when the market takes a sudden downturn. The seasoned investor buys his stocks when they are priced low, hold them for the long-pull rise and takes in-between dips and slumps in his stride.
Buy when stock prices are low-the lower the better-and hold onto your securities.
Some stocks I own today are worth more than 100 times what I originally paid for them.
a. Sound stocks, purchased for investment when their prices are low and held for the long pull, are very likely to produce high profits through dividends and increases in value.
b. Highly important among them is the axiom that no one should ever buy a stock without knowing as much as possible about the company that issues it.
c. The average investor should consider buying only such common stocks as are listed on a major stock exchange.
d. Common stocks should be purchased when their prices are low, not after they have risen to high levels during an upward bull-market spiral. Buy when everyone else is selling and hold on until everyone else is buying-this is more than just a catchy slogan. It is the very essence of successful investment.
e. Naturally there have been and always will be dips, slumps, recessions and even depressions, but these are invariably followed by recoveries which carry most stock prices to new highs. Assuming that a stock and the company behind it are sound, an investor can hardly lose if he buys shares at the bottom and holds them until the inevitable upward cycle gets well under way.
f. The investor has to be certain that neither the products of the company in which he invests nor the particular industry itself will become obsolete in a few years.
It follows that the investor must know as much as he possibly can about the corporation in which he buys stock. The following are some of the questions for which he should get satisfactory answers before he invests his money:
1. What is the company's history: Is it a solid and reputable firm, and does it have able, efficient and seasoned management?
2. Is the company producing or dealing in goods or services for which there will be a continuing demand in the foreseeable future?
3. Is the company in a field that is not dangerously overcrowded, and is it in a good competitive position?
4. Are company policies and operations farsighted and aggressive without calling for unjustified and dangerous over-expansion?
5. Will the corporate balance sheet stand up under the close scrutiny of a critical and impartial auditor?
6. Does the corporation have a satisfactory earnings record?
7. Have reasonable dividends been paid regularly to stock-holders? If dividend payments were missed, were there good and sufficient reasons?
8. Is the company well within safe limits insofar as both long- and short-term borrowing are concerned?
9. Has the price of the stock moved up and down over the past few years without violently wide and apparently inexplicable fluctuations?
10. Does the per-share value of the company's net realizable assets exceed the stock exchange value of a common stock share at the time the investor contemplates buying?
There are innumerable fine buys on the market today. Among them are many stocks issued by companies with net realizable assets two, three, four and even more times greater than the stock exchange value of their issued shares.
Another valuable investment secret is that the owners of sound securities should never panic and unload their holdings when prices skid. Countless individuals have panicked during slumps, selling out when their stocks fell a few points, only to find that before long the prices were once more rising.
The veteran investor objectively looks for bargains in growth stocks- which he buys and holds, and from which he generally reaps handsome profits over a period of years. He bank on the climate- and makes all necessary allowances and takes all precautions so that he can ride out any stock market storms.
It is the emotional nonprofessional investor who sends the price of a stock up or down in sharp, sporadic and more or less short-lived spurts. A politician's speech, an ivory-tower pundit's pronouncements or prophecies, a newspaper item or a whispered rumor- such things are enough to trigger wildly enthusiastic buying sprees or hysterical orgies of panicky selling by thousands of self-styled investors. The professional investor has no choice but to sit by quietly while the mob has has its day, until the enthusiasm or the panic of the speculators and nonprofessionals have been spent.
The seasoned investor does not allow temporary fluctuations in stock-market prices to influence his decisions to any great extent. Usually, he waits until prices return to approximately the levels at which he wants to buy or sell. He is not impatient, nor is he even in a very great hurry, for he is an investor- not a gambler nor a speculator.
The wise investor will recognize that many stocks being offered on the market are still considerably under priced. For example, there are many issues selling for as little as one-third or even one-fourth the net, per-share liquidation values of the issuing company's assets. To understand what this can mean to the stockholder, consider the case of the Honolulu Oil Company.
Naturally, shareholders can reap this particular type of windfall profit only when the company concerned is dissolved. But it should be plain to see how much added safety there is in investing in a company that has tangible assets with a net liquidation value greater than the value of its stock. If, as an example, the net liquidation value is three times that of the stock, then in effect, each dollar of the stockholder's investment is secured by three dollars' worth of realizable assets. There are more such companies than one might imagine. They can be found in various industries, but I am most familiar with companies in the petroleum industry and, more particularly, with those engaged in the business of producing oil.
Credit - J. Paul Getty : How to be rich
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