A Correct Basis For Speculating
We maintain that there is only one basis upon which successful
speculation can be carried on continually; that is, never to buy a
security unless it is selling at a price below that which is warranted
by assets, earning power, and prospective future earning power.
There are many influences that affect the movements of stock prices,
which are referred to in subsequent chapters. All of these should be
studi
relation to the value of the stock in which you are trading.
If the market price of any stock is far below its intrinsic value and
there is no reason why the future should bring about a change in this
value that will decrease it, then you may be certain that important
influences are working against the market price of the stock for the
time being. In the course of time the market price will go up towards
the real value. This matter will be more fully explained in subsequent
chapters.
You always should keep in mind the fact that when you buy a stock at a
higher price than its intrinsic value, you are taking a risk. The stock
may have great future possibilities, but it is risky to buy stocks when
present assets and earnings do not warrant their market prices, no
matter how attractive prospective future earnings may appear. However,
the possibilities of profit sometimes are so great that one is justified
in taking this risk.
It is our belief that the majority of traders buy stocks because they
are active in the market and somebody said they were a good buy, even
though the real values may not be nearly as much as the market prices.
As an example of this kind of trading, we want to call your attention to
a news item that appeared in a New York paper. It stated that on April
1st, some brokers in Detroit, as an April Fool joke, gave out a tip to
buy A. F. P., meaning April Fool Preferred, but when asked what it
meant, replied "American Fire Protection." Of course, there was no such
stock, but there was active trading in it until the joke was discovered.
Evidently it is not necessary to list a stock on the Detroit Stock
Exchange in order to trade in it.
This story may or may not be true, but we believe the statement that
people trade in stocks they do not know anything about is true. You
should be careful not to buy a stock merely because somebody says it is
a good thing to buy, unless the person making the statement is in the
business of giving information on stocks, because it may be only a rumor
with no substantial basis. Of course, if many people act on the rumor,
there will be active trading in the stock, and it is frequently for that
purpose that such rumors are started.
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A Correct Basis For Speculating
We maintain that there is only one basis upon which successful speculation can be carried on continually; that is, never to buy a security unless it is selling at a price below that which is warranted by assets, earning power, and prospective futu... Bucket Shops
There has been so much publicity given to bucket shops, nearly everybody is familiar with the term. A broker runs a bucket shop when he sells stock to his clients on margin and either never buys the stock for their accounts, or else sells it immed... Choosing A Broker
It is very important that you choose a good broker. No matter how careful you are, it is possible to make a mistake. However, if you choose a broker who is a member of the New York Stock Exchange, you have eliminated a very large percentage of you... Major Movements In Prices
Stock prices move up and down in cycles. These are the major movements in prices, but there may be many minor movements up and down within the major movements. These stock price movements nearly always precede a change in business conditions; that... Manipulations
Stock prices are influenced largely by manipulation. Years ago when the volume of trading on the New York Stock Exchange was small compared with what it is today, it was possible to influence the entire market by manipulation, but it would be very... Marginal Trading
Most people who trade in stocks buy on margin. The ordinary minimum margin is about 20% of the purchase price, because banks usually lend about 80% of the market value of stocks. If you put up 20% of the purchase price of your stocks with your b... Market Information
Where do you get your market information? Perhaps most people get it from the daily papers. When you look over the financial news of one of the leading metropolitan papers and see how much there is of it, you can get some idea of the enormous volu... Minor Movements In Prices
Within the major movements of stock prices, there always are several minor movements, which are caused by various influences. One of the important causes is the technical condition of the market. Another cause might be called a psychological one. ... Movements In Stock Prices
It is due to the fact that stock prices constantly move up or down that speculation is possible. Sometimes certain stocks remain almost at a standstill for a long period of time, but at least a part of the stocks listed on the Exchanges move eithe... Possibilities Of Profit
What are the possibilities of profit in stock speculation? That question is frequently asked but it is difficult to answer. James R. Keene is quoted as having said: "Many men come to Wall Street to get rich; they always go broke. Others come to Wa... Puts And Calls
A "put" is a negotiable contract giving the holder the privilege to sell a specified number of shares of a certain stock to the maker at a fixed price, within a specified time. A "call" is the exact reverse. It is a negotiable contract giving the ... Short Selling
By short selling, we mean selling a stock that you do not possess, with the intention of buying it later. Short selling in general business is very common, and we think nothing of it. Manufacturers frequently sell goods that are not yet made, to b... Stock Some Terms Explained
There are certain terms used in connection with stock speculation that are very familiar to those who come in contact with stock brokers, and yet are not always familiar to those who do business by mail. Undoubtedly the majority of our readers are... Stop Loss Orders
A "stop-loss" is an order to your broker to sell you out if the market sells down a certain number of points. Many speculators place stop loss orders only two points from the market price. The idea is that when the market starts to go down it is l... Successful Speculation
Success in stock speculation depends upon a few things that are very simple. If you know what to buy, when to buy, and when to sell, and will act in accordance with that knowledge, your success is assured. You may think it is impossible to know... Technical Conditions
Technical conditions refer to the conditions that usually affect the supply and demand, such as short interests, floating supply, and stop loss orders. It is sometimes said that supply and demand must be equal or else there could not be any sal... The Desire To Speculate
It is said that the desire to speculate is very strong in the American people. That is why our country has made greater progress than any other country in the world, because progress is the result of speculation. We are not referring merely to sto... The Money Market And Stock Prices
Perhaps no other one thing influences the movement of stock prices so much, in a large way, as money conditions. It is impossible to have a big bull market without plenty of money. During a bull market nearly all stocks are bought on margin, which... Two Kinds Of Traders
There are two kinds of stock traders. One kind nearly always makes a profit, and the other wins sometimes and loses other times, but eventually loses all if he does not change his methods. The first kind buys stocks on liberal margin or outright a... What Is Speculation?
To speculate is to theorize about something that is uncertain. We can speculate about anything that is uncertain, but we use the word "speculation" in this book with particular reference to the buying and selling of stocks and bonds for the purpos... What Stocks Not To Buy
A great deal more can be said about stocks you should not buy than about stocks you should buy, because the list is very much larger. Stocks not listed on the New York Stock Exchange, as a rule, should not be bought by a careful speculator, but ... What Stocks To Buy
In deciding what stocks to buy, it is well to consider first the classes of stocks, and then what particular stocks you should buy in the classes you select. We would first of all divide all stocks into two classes, those listed on the New York St... When Not To Buy Stocks
There are times when stocks should not be bought, and that is when nearly all stocks have advanced beyond their real values. It is doubtful if there ever is a time when all stocks have advanced beyond their real values, but when the great majority... When To Buy Stocks
Stocks should be bought when they are cheap. By being cheap, we mean that the market price is much less than the intrinsic value. In Chapters X. to XV. we talk about influences that affect the price movements of stocks. By studying these carefully... When To Sell Stocks
You should sell stocks when the market price is too high. That is a general rule, but it is necessary for you to study all the influences affecting stock prices to be able to decide more accurately when you should sell your stocks. We give you, in...