The investor's longer-term bonds may relatively wide price swings during their lifetimes, and his common-stock portfolio is almost certain to fluctuate in value over any period of several years.
The investor should know about these possibilities and should be prepared for them both financially and psychologically. 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 price.
The investor should know about these possibilities and should be prepared for them both financially and psychologically. 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 price.
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 eyes open, knowing that you will propably lose money in the end; be sure to limit the amount at risk and to separate it completely from you investment program.
We shall deal first with the more important subject of price changes in common stocks, and pass later to the area of bonds.
There are two possible ways by which you may try to do this:
- the way of timingBy timing we mean the endeavor to anticipate the action of the stock market-to buy or hold when the future course is deemed to be upward, to sell or refrain from buying when the course is downward.
- the way of pricingBy pricing we mean the endeavor to buy stocks when they are quoted below their fair value and to sell them when they rise above such value.
The most realistic distinction between the investor and the speculator is found in their attitude toward stock-market movements. The speculator's primary interest lies in anticipating and profiting from market fluctuations.
The investor's primary interest lies in acquiring and holding suitable securities at suitable prices. Market movements are important to him in a practical sense, because they alternately create low price levels at which he would be wise to buy and high price levels at which he certainly should refrain from buying and probably would be wise to sell.
The investor's primary interest lies in acquiring and holding suitable securities at suitable prices. Market movements are important to him in a practical sense, because they alternately create low price levels at which he would be wise to buy and high price levels at which he certainly should refrain from buying and probably would be wise to sell.
- The Intelligent Investor, Benjamin Graham
