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 tha