Book Notes: Gerald Loeb's "The Battle for Investment Survival"

Any earner who earns more than he can spend is automatically an Investor. Storing present purchasing power for use in the future is Investing, no matter in what form it's put away. IT REQUIRES KNOWLEDGE, EXPERIENCE, AND FLAIR Knowledge born from actual experience is the answer to why one profits; lack of it is the reason one loses. Knowledge means information and the ability to interpret it marketwise. There is no such thing as a final answer to security values. Market values are fixed only in part by Balance Sheets and Income Statements; much more by the Hopes and Fears of humanity; by Greed, Ambition, Acts of God, Invention, Financial Stress & Strain, Weather, Discovery, Fashion and numberless of other causes impossible to be listed without omission. Even the price of a stock at a given moment is a potent influence in fixing its subsequent market value. Thus a Low figure might frighten holders into selling, deter prospective purchasers or attract bargainseekers. A High figure has equally varying effects on subsequent quotations. The extend to which one realizes one's distance from perfection is the real measure of how successful one may become in Wall Street. It is the realization of the danger that is important. SPECULATIVE ATTITUDE ESSENTIAL Investment is far more complicated than just getting money value back with interest or at a profit. The greatest threat to successful preservation of capital is the varying Purchasing Power of Money. To achieve success, one must set the investment goal very high. Not only that but the goal must also be a Speculative one. The program must be aimed at obtaining a sufficient profit to offset the average losses sustained in all investment, the inevitable personal errors of judgment, the effects of currency depreciation and taxation, and the unexpected necessity of having sometimes to close out an investment earlier than originally planned. "Investment" is fundamentally an effort to obtain, in addition, a rental from others for the temporary use of capital "Speculation" means using the capital in such a manner that its spending power is not only preserved but also increased, through the realization of profits in the form of dividends, or capital gains or both. PITFALLS FOR THE INEXPERIENCED The less expert, the wider their activities. The first thing for the average venturer is to restrict purchases and sales to liquid, listed securities A very important advantage of the liquid, quoted security is the ability to follow its progress daily. Nothing is a quicker indicator of trouble than special and unusual weakness. In every line of modern endeavor the value of Specialization is apparent. This holds just as true in the handling capital. Those who will select and master 1 medium are far better off than those who must dabble in realty, foreign exchange, commodities, obscure unlisted stocks, foreign bonds, etc. OUR FIRST RULE IS TO CONCENTRATE IN ACTIVE, LISTED ISSUES. HOW TO INVEST FOR CAPITAL APPRECIATION The next point is to learn to "INVEST FOR APPRECIATION". Every purchase must be considered almost solely on the basis of what it will return in income and appreciation added together and treated as one. It is absolutely futile to try to get results except by buying into anticipated large gains. The paramount importance of TIMING: It is not enough to buy something cheap if it stay cheap. One must buy it just as it starts to get dearer. Are we learning to trade for the quick turn or to invest for the long pull? We are investing for appreciation, and the LENGTH OF TIME ONE HOLD a position has NOTHING to do with it. TRADES SHOULD NEVER BE CLOSED UNLESS A GOOD REASON IS AT HAND. But many "long-pull" traders ignore a sign of a change of trend because they feel it is temporary. Often they are right but eventually they are wrong, and usually at great cost. The short-term method requires the CLOSING OF THE TRADE FOR A REASON, and if later the situation changes, then one can re-establish the position. SPECULATION VS. INVESTMENT As in many other phases of life, the MAJORITY is decidedly WRONG. In fact, the individual who does his OWN THINKING must learn to question most mass movements of majority point of view, for they are usually wrong. I constantly suggest speculation rather than investment as the policy less apt to show a loss and more apt to show a profit. My feeling is that an intelligent program aimed at DOUBLING one's money might at least succeed in retaining one's capital or actually making a good profit with it. ANY AIM LESS THAN DOUBLING IS DOOMED TO FAILURE. I advise laying a PLAN TO DOUBLE YOUR MONEY. You can be far from achieving your goal and still make a great deal, but if you start to get a mere income, the slightest miscalculation puts you in the red. Trying to invest for 6% is like trying to retire. Trying to double you money requires your ACTIVE presence and a LOT OF WORK. WHY COMMITMENTS SHOULD NOT BE HAPHAZARD It seems fundamental that one should know why a commitment was opened, what one expected to make, how long it was expected to take, and what one was willing to risk. In my opinion, commitments should not be closed haphazardly, or even worse, allowed to remain open without justification. I suggest the size of commitments in one sense be kept small - that is, the relationship of funds employed to total capital. A backlog of cash is a great help in meeting emergencies and in freeing one's judgment so that commitments are opened and closed for financial cause and not affected by need, fear, greed, or other human failings which are fatal to profitable security investment. Except in special circumstances, I do not and never could see much necessity for margins or other forms of borrowing. In another sense, large commitments are preferable to great many small positions. Confining oneself to situations convincing enough to be entered on a relatively large scale is a great help to safety & profit. One must know far more about it to enter the position in the first place, and one will retreat from a mistake much quicker if failure to retreat means an important loss. A large number of small holdings will be purchased with less care and ordinarily allowed to run into a variety of small losses without full realization of the eventual total sum lost. Thus over diversification acts as a poor protection against lack of knowledge. SOME "DON'T" IN SECURITY PROGRAMS The basic practical working policy is never to invest unless the possibilities of the chosen stock seem very great. No security should under any circumstances be bought unless in the investor's well and deeply considered judgment the profit possibilities are large and greatly outweigh the invisible risks. When an investment is made, its prospects must be so good that placing a rather larger proportion of one's total funds in such a single situation will not seem excessively risky. At the same time, the potential gain must be so large that only a moderate portion of total capital need to be invested to get the desired percentage appreciation on total funds. This means that diversification is undesirable. Only the Best is bought at the best possible Time. Risks are reduced in 2 ways - (1) by the care used of Selection, and (2) by the maintenance of a large cash reserve. Concentration of investments in a minimum of stocks insures that enough time will be given to the choice of each so that every important detail about them will be known. This policy involves not only avoiding diversifications but also holding one's capital uninvested for long periods of time. It should be axiomatic that the successful investor will keep his capital idle in times of popular over-investment and over-confidence. He will be sorely tried at times when profits and income are seemingly easy to procure. Any program which involves complete investment of all capital at all times is certain to fail unless the amount of it is extremely small. The greater the total capital owned, the lower should be the proportion employed in active investments. Another concept essential to success in the battle for investment survival is that the investor must learn to think in terms of ultimate rather than current results. WHAT TO LOOK FOR IN CORPORATE REPORTS What I look for is a company that regardless of reported profits is somewhere getting enough cash income to take care of the factors i.e. to amortize debt, increase working capital, maintain or if profitable enlarge plant capacity and efficiency and pay dividends. CONCERNING FINANCIAL INFORMATION, GOOD OR BAD The average security buyer usually decides on a stock commitment because of an impressive analysis of a situation, or as a result of noting a certain convincing price action or because of some form of "information" There are very few, however, who can discriminate between sources of valuable and sources of misleading information. It was always was and always will be the power to understand and the ability to act that turns information into profits Thus, while getting honest, unbiased information is naturally essential, it is useless without either personal interpretative ability or access to one who has this faculty. Therefore, I feel that any source ready instantly to pass on everything and anything should be regarded with skepticism. WHAT TO BUY AND WHEN It is the Earnings discounted in the Price which are the determining factor, and not always the earnings level actually existing at the time of proposed purchase. It is important to stick to issues which in past times of bullish enthusiasm have had active markets and which can be expected to have active markets again. However, at the time of purchase they must be low-rated and unpopular, with their prices down and discouragement about their prospects quite general. The objective is always buy that which the majority thinks is speculative and sell it when the majority believes the quality has reached investment grade. The fact that a stock is widely held by investment trusts is not a good reason for buying. The distinction of being the stock most frequently listed in published institutional holdings simply means not only that the price is probably high rather low but also that there is a large number of potential sellers should the situation take a turn for the worse. Market valuations of most securities change in a single period of a very few months by an amount equivalent to many years of dividends or interest coupons. IMPORTANCE OF CORRECT TIMING Another reason why selling at the right time is more difficult than buying is that the development of a frame of mind in which only real bargains are sought carries with it a tendency to lose confidence too early. It is sound policy to get out of long positions which begin to prove themselves wrong by declining in price. Losses must always be "cut". They must be cut quickly, long before they become of any financial consequence. After the elimination of a stock in this manner, the transaction must be forgotten. It must be left out of future consideration so completely that there is no sentimental bar to reinstating the position at higher level, either very soon or at any later date, if the purchase again seems strongly advisable. Cutting losses is the one and only rule of the markets that can be taught with the assurance that it is always the correct thing to do. People like to take profits and don't like to take losses. They also hate to repurchase something at a price higher than they sold it. Human likes and dislikes will wreck any investment program. Only logic, reason, information and experience can be listened to if failure is to be avoided. It is advisable always to keep uninvested reserve funds on hand in order to take advantage of unexpected opportunities. STATISTICAL ANALYSIS, MARKET TRENDS, AND PUBLIC PSYCHOLOGY In my opinion, the primary factor in securing market profits lies in the general trend. Thus effort should be concentrated first on deciding the trend and next in seeking out the most responsive stocks. It is more feasible to try to follow profitably a trend upwards or downwards than to attempt to determine the price level. The most important single factor in shaping security markets is public psychology. One should bend every effort to determine what the tendencies of the public are, right or wrong, and profit from them. In taking up individual security analysis one naturally is going to attempt to forecast the trend of profits or dividends, but unless this is done in connection with former market appraisals of past earning power and previous yields, under varying conditions, the practical value which can be drawn from the figures in greatly decreased. PRICE MOVEMENT AND OTHER MARKET ACTION FACTORS Of all the factors that go to make up a well-rounded opinion on the general market trend and, more especially, the individual stocks selected for a commitment, I would easily rank the actual Price Movement first. These Price & Volume changes not only will add the most important confirmation to market expectations based on analysis or advance information, but also will supply the most vital clues in the shape of calling attention to unfamiliar issues worth checking in other directions. Security Buyers & Sellers affected by Market Action might be classed 3 ways: (1) The "Public": frequently spurred into great mass buying or selling movements by the spectacle of changing prices and volumes. The public itself built up its own picture on the tape as one followed the other into the market, each impressed by the action created by the previous purchasers or sellers. Regardless of initial profit, I doubt if anything other than losses ever accrued to this type of trader or investor in the long run. (2) The "Chart/Tape Reader": I would place self-styled accomplished chart/tape readers who are guided exclusively by what they think they see in lines on the charts or symbols on the tape. If they really use only theories based on market action to form their conclusions, my guess is that they also lose in the long run. (3) The successful type is the real expert in this highly specialized form of interpretation who understand the proper weight to give market action factors in relation to others and especially realizes that as the price movement reflects everything, it necessarily reflects not only good buying or selling but also commitments made incompetently, rashly, or frivolously. He goes further than noting whether given market action is "bullish" or "bearish" and realizes the need to attempt consideration of the causes and forces behind the indication and whether it is likely to prove correct. While I feel that market action is almost always entitled to receive the greatest consideration of the various factors that go to make up the final appraisal of a stock's position, one should realize the large possibilities of drawing erroneous conclusions either from inexpertness as regards interpretation of the market movement or neglect of supporting factors such as statistical and economic influences, the technical situation, sponsorship, and company developments not generally known or discounted. In the consideration of market indications, the most important point is the Time element. Outstanding strength or weakness can have precisely opposite meanings at different times in the market cycle. Judgment of action should also be in relation to the publicly known and unknown News. What might otherwise be considered weakness may be an indication of strength under certain News conditions, and vice versa. Individual movements or activity should be judged only in relation to the movement and activity of the list as a whole. The larger the public participation, the more accurate conclusions are apt to be. Theorists may claim that "stocks are too high" or "too low" based on their individual and varying idea of what people should pay for a given situation at a given time. But the real price of stocks is based on the Majority appraisal of the moment. From a practical point of view it is vital to investment success to banish such ideas and give the proper market valuation to the Desire and Ability, or Lack of Desire and Ability, on the part of people to bid or offer stocks. One must realize that investment actually is the most inexact sort of science. This is especially true because of the most important part psychology plays in shaping prices. My rule for profitable investment is predicated on full recognition of the difficulties involved. Instead of rushing in on some flimsy basis or for that matter on some important, well planned and carefully checked, and seemingly conclusive single line of thought, my advice is to question its correctness by testing the conclusion from all the other available angles and then form a composite action. FURTHER TECHNICAL OBSERVATION The real point in the practical application of these theories is the flair for knowing when to believe the indications and when not to believe them. I am inclined to favor doing one's major forecasting from the tape or from the price movement. This to me is elemental and necessary to success. Thus, once convinced the market is headed up, I should tend to follow the strongest of the active issues - those reacting the least in weakness and rallying the most in strength. I cannot overstress the importance of: - thinking more of the time something occurs rather than of just the occurrence itself; - comparing the action of one issue with others rather than just following an isolated move; - watching the effect of the news on prices rather than bothering too much about the news itself; - looking into both demand & supply as against the usual practice of thinking about only one side of the market at a time. All the stocks are always owned by someone. The question is by what class? Every selling order executed must be matched by a buying order and vice versa. Again, who is on each side? Most laymen think that when there are a lot of buy orders and few sells, his stock is well supported and more apt to go up than down, and vice versa. As a matter of actual practice, in most cases exactly the reverse is true. The reason for this is that the market must ordinarily move against the largest limited orders. You cannot buy what's not for sale, nor sell when there is no bid. The most important factor in attempting to read tape/chart or price movement "indications" is the TIME element. In brief, the earlier in a cycle the indication, the more important. If it is late enough, it means nothing. The most consistently reliable danger signal in a stock is a sharp advance and complete retracement of the gain on great activity after a long series of advances in a market which one would ordinarily regard with suspicion anyhow. The smart trader pyramids on new highs; the uninformed one "averages". There is something about new highs that makes them look unfamiliar and dangerous to the tyro. The first time an issue sells at 20, 25, 30, 35, 40, 45, 50, 55, it looks very risky. But after 55 then 49 looks safe and secure. Thus most "distribution" is done "one the way down". MORE ON TECHNICAL POSITION OF MARKET - ITS INTERPRETATION AND SIGNIFICANCE Obviously every share traded is at all times owned by someone so that this refers to the quality of the ownership. A knowledge of the position of the odd-lot house is of great technical value. In my opinion, the technical clues the published odd-lot figures offer, are invaluable, and rank close to the very top of the possible technical factors in usefulness. People who depend more on the buying and selling quality information given by the odd-lot figures are in a far better position to know of a coming trend before it actually starts. Correct odd-lot quality of buying or selling interpretation can come closer to predicting beforehand which way the move is likely to be, i.e. whether the trading in the range was "accumulation" or "distribution". Another interesting and useful short-run indication of the technical position is secured from a general knowledge of approximately ratio of limited orders entered on one side of the market as compared with the other. Curiously, stocks generally move in the direction of the heavy book, which is to say they tend to decline on a combination of heavy limited buying orders entered on a scale down and a much smaller number and amount of limited sell ordered entered on a scale up, and reciprocally. The reasons for such action, which is contrary to one's first expectation, seem to me to lie in the obvious necessity of stock being available for sale to make important buying possible and likewise plenty of bids are necessary to permit heavy selling. A final aspect of the technical position is consideration of the type of stock ownership for the purpose of adding to a long-range investment appraisal. Personally, for initial long-pull purchase, I prefer a company with the nearest thing to ownership management, very few stockholders, and those holding large blocks, other things being equal. ADVANTAGES OF SWITCHING STOCKS I see peace of mind in the short turn because I feel the realization of something is a relief compared with the thread. The short turn tends to get one in the right stocks in a practical way because it is based on movement and current prices, and not on expectations that might be poorly received. Short turn trading, properly done, is certainly the safest form of speculation that exists. The right way to do it is pyramid. To a degree, the risk in the stock I bought on the way up was mainly the risk of my paper profits; it was not like entirely risking capital as in the initial purchase. It is of course enormously more difficult to close a trade properly than to open it. When you open a trade it's voluntary. When you consider closing one it's a decision you are forced to make - hold or close - even though you find it hard to know what to do. You can always stay out, but once in, you must know whether to stay in or get out. My best reason for selling a stock is because it stops going up, or worse, starts going down. Some very great fortunes have been made by holding some favorite stock through thick & thin. How many have been made through chance and how many through judgement? I think most of them by chance, coupled with certain other qualifications, definitely rarely by judgment. "FAST MOVERS" OR "SLOW MOVERS"? The safety should come not from the selection of a slow mover or a cheap issue or, worse yet, a group of such shares, but by concentration in the one outstanding, fast-trading leader that is jumping in the right direction. I generally favor issues selling at high prices per share. They are more apt to be in the rapid-mover stage. One should regard one's possible profits more on a percentage basis than on a point basis, and one should measure the force of an advance the same way. Low priced shares with huge capitalizations are usually quite undesirable. DETECTING "GOOD" BUYING OR "GOOD" SELLING The first thing to learn about tape reading is the ability to see the difference between indications recorded on good buying or selling and those which are the result of light-waisted action. Stocks that are high and going higher are a good buy. Stocks that are "cheap" and growing cheaper don't interest me from a buying angle. GAINING PROFITS BY TAKING LOSSES The most important single thing I learned is that accepting losses promptly is the first key to success. It is a great mistake to think that what goes down must come back up. In the first place, in all cases where actual losses are involved, I'm inclined to say that when a new investment has shrunk by 10%, it is time to stop, look and listen. You might even buy the same stock back later, but you'll find that you'll have quite a different kind of thinking, much more unbiased once you have sold it out. Probably, you won't buy it back, or you will find that you can buy something else. The big problem is to look at investments completely coldly, allowing no sentiment to play any part. 9 out of 10 it is better to sell a stock which is down because it is then so much easier to do your thinking unprejudiced by your position. YOU CAN'T FORECAST, BUT YOU CAN MAKE MONEY My flair was not in picking out more winners than the next fellow, nor in knowing more often the right time to buy them, but rather in recognizing my good from my bad. Cutting losses is a basic part of successful investing, the other basic part is following up profits. By that, I mean having a greater amount of the stock which proves to be your best selection and giving it the time to advance more. Or, if it's a case of market timing, it amounts to the same thing, namely, having more stocks when you are right than when you are wrong. If you seem to be wrong, quit as cheaply as you can. If you seem to be right, you will want to enlarge your position. Here is where you will start to discard the ones you begin to find less attractive and concentrate on those you find doing the best for you. In my practical experience, the way to successful investment lies much more in learning how to utilize your best thoughts and minimize your worst rather than in being better at selection or better at timing than the average. STRATEGY FOR PROFITS Being a good company has not prevented its earnings, dividends and price from registering many wide ups and downs. If timing is right, 1 stock (the leader if it can be recognized) is all that is necessary to buy. Selection of too many issues is often a form of hedging against ignorance. Some people imagine falsely that it is safer. The chance for errors in judgment is thus increased by diversification, and certainly keeping posted on a broad list after it is purchased is much more difficult than keeping posted on a few very selected shares. Keep uninvested unless and until a particular opportune time present itself. This policy is commonly called "speculative". In fact, it is speculation recognized as such and undertaken only when the odds are in one's favor. Nevertheless, mistakes will be made. And when they are, there is no cheaper insurance than accepting a loss quickly. A buyer who hold regardless of unfavorable news or action can become involuntarily locked in his "investment" for years, and often no amount of future waiting can extract him from his predicament. It is important to regard the situation with an open mind, unbiased by a bad stale position, and it is important to be able to act each time convictions are very strong. Unless losses are cut, such an attitude and such action are impossible. THE EVER-LIQUID ACCOUNT Briefly, in its operation, an ever-liquid account is normally kept fully uninvested i.e. in cash Income and appreciation are obtained in the ever-liquid account by entering the stock market as a buyer when a situation and trend seem clearly enough established so that a paper profit is present immediately after making the purchase. In order to keep the account truly ever-liquid, one must use a mental or an actual stop on all commitments amounting to about 3% of the amount invested. Of course, one does not make a purchase unless one feels rather sure that the trend is sufficiently well established to minimize the possibility of being stopped out. The stock finally selected must of necessity be a very liquid active market leader or give extremely strong promise of shortly entering that class; and in order to buy and hold it or increase one's line of it, it must be advancing in price. The investment philosophy leads into concentrated purchases of single issues rather than diversification, because one of the primary elements in the situation is that one must know and be convinced of the rightness of what one is doing. This method also rarely calls for attempts to buy at the bottom, as bottoms and tops are actually impossible to judge ordinarily, while trends after they are established and under way can be profitably recognized. It is a method that leans towards pyramiding. Averaging down completely against its theory. If the shares go down, the loss will be small. If they go up, more can be bought. After a small decline, the method forces liquidation regardless of other facts. The fact of the market decline itself is the ruling fact of the situation. There is no rule against repurchase lower or higher as far as the ever-liquid account is concerned. In fact, repurchases at higher than the original or first liquidation price tend to return profits rather more than the average buy. The reason for this phenomenon is that the market, in getting stronger when the general expectation suggest it will get weaker, is, in fact, giving an buying suggestion to those who will see it and are not afraid to follow it. However, the ever-liquid account, having taken a loss and being out of the market, is in a preferred position because its owner goes back into the same stock only if conditions justify. He is not just locked in and hoping. In the interval of time, an other issue may, on the revival of an uptrend, seem far more attractive. MERITS OF GOLD-MINING SHARES Gold shares are in a singular category. They come nearest to the perfect means of preserving current purchasing power for future use. Gold companies are relieved of any effort to find markets for their product in contrast with the usual extensive and costly sales departments of ordinary business concerns. Gold shares are devaluation hedges. Their product does not go out of date. The desire for gold is the most universal and deeply rooted commercial instinct of human race. DIVERSIFICATION OF INVESTMENTS I think most accounts have entirely too much diversification of the wrong sort and not enough of the right. The intelligent and safe way to handle capital is to concentrate. If things are not clear, do nothing. When something comes up, follow it to the limit. If it's not worth following to the limit, it is not worth following at all. My thought, of course, is always start with a large cash reserve; next, begin in one issue in a small way. If it does not develop, close out and get back to cash. But if it does do what is expected of it, expand your position in this one issue on a scale up. The greatest safety lies in putting all your eggs in one basket and watching the basket. You simply cannot afford to be careless or wrong. Hence, you act with much more deliberation. A further diversification which is important to consider is diversification as between the position of varying companies in their business cycle or as between their shares in their market price cycle. This is a very important consideration because dividing one's funds between 3 or 4 different situations which happen all to be in the same sector of their cycle can often be discouraging or dangerous. CASE HISTORY The atmosphere around the bottom of declines is always a pessimistic one and, human nature being what it is, a person buying a stock at the wrong time is very apt to double his error and sell it at the wrong time. Losses can occur even in solid issues with a growth trend, if timing is bad and excessive premiums are paid for popularity. The much greater value is often placed on expectations than on reality. Stocks ordinarily make their highs at the moment that the greatest number of people visualize the greatest possible value, and not necessarily at the moment when the highest earnings or highest dividends or highest values are actually achieved.

TIP TO THE INVESTOR: ALWAYS WRITE IT DOWN

Writing down your cogent reasons for making an investment - what you expect to make, what you expect to risk, the reason why - should save you many a dollar. My major successes were invatiably preceded by a type of written analysis. Sudden emotional decisions have generally been disappointments.

Writing things down before you do them can keep you out of trouble. It gives you tangible material for reference to evaluate the Whys and wherefores of your profits or losses.

DON'T LET TAX QUESTIONS CLOUD INVESTMENT DECISIONS

As I see it, investment principles should always outweight tax considerations.

Careful, objective judgment is the only intelligent key to successful invesment.

When should you seek short-term profits? At any time you feel the market situation is favorable.

You should never hesitate to take a profit, regardless of tax, if you feel waiting could endanger your gain. A profit, large or small, is always worth having.

INVESTING IN NEW PRODUCTS

As in every other investment situation, market action never exactly coincides with realization. The average stock goes up on great expectations. Very often the rise is excessive. It frequently occurs well ahead of actualities. Sometimes the whole expectation is never realized. The new product fails to take on or produce a profit.

Traders can benefit from emotional temporary moves. Investors never can. To succeed you must as a trader be careful not to overstay your market.

NEWS AND THE MARKET

Expected news is generally discounted. By the time anticipations become actualities, market prices have generally already reached their objective.

It is the unexpected news that poses a much more difficult problem. A major piece of unexpected news raised 3 questions:

- the nature of the news

- whether it is good or bad and what is likely to follow

- the position of the market

DOUBLE DIVIDENDS

WHY BUY QUIZ

- How much am I investing in this company?

- How much do I think I can make?

- How much do I have to risk?

- How long do I expect to take to reach my goal?

WHEN TO SELL QUIZ

Do not Sell unless:

- You see a Bear market ahead

- You see trouble for a particular company in which you own shares

- Time and circumstances have turned up a new and seemingly far better buy than the issue you like least in your list

- Your shares stop going up and start going down

Which stock?

- Do not sell just because you think a stock is "overvalued"

- If you want to sell some of your stocks and not all, invariably go against your emotional inclinations and sell first the issues with losses, small profits or none at all, the weakest, the most dissapointing actors...Alway keep your best issues for the last.

WHAT MAKES A STOCK "GOOD"

There are 3 basic elements that overshadow all others in appraising the worth of a stock: QUALITY - PRICE - TREND

MORE ON TAPE READING

To my mind, tape reading means Price Forecasting based on Interpretation of Transactions. Thus a security buyer who has stock prices placed on his desk once each hour and acts on the information he derives from them, is a "Tape Reader". My definition of a pure tape reader is one that ONLY depends on stock transactions for his decisions.

Tape reading and Technical Analysis are not the same. The former is a portion of the latter. TA considers many more factors than pure tape reading.

The true tape reader needs everything that can be known about actual transactions plus anticipated and realized news. He needs to know expected news and news as it occurs only from the point of view of judging his transactions. Thus, if a stock is active and strong on no news, it means one thing to him and if it is active and strong on an announced dividend increase, it means another.

The true tape reader uses news only to consider its relation to the tape action and never-neve-for itself. If a person buys a stock because of good news he is not a tape reader any more than if he considered other baisc statistical security factors. However, if he buys a stock because of its action - ACTION - on some news then he can truly be considered to be acting on the tape.