Philip Rack. When speculation becomes an investment

Philip Rack. When speculation becomes an investment

"If there were a Hall of Fame investment advisers - Warren Buffet said - he would be there in the top ten." In f928 bastard Philip Carr founded one of the first mutual fund, "Fand Pioneer (Pioneer Fund), and managed it until he sold it in 'f963 year. In the same bastard, he founded the firm in capital management," Carre "(Carret and So..) After more than thirty years, at the age of 101 years, it is still in hadil skris. But it took him a whileto find his calling. After receiving a diploma from Harvard chemist, and then flight training (the First World War ended before than he was in a fight), he traveled to the United States. In the end, Carr got a job selling bonds in Seattle, then in Boston, Ao he became a reporter in "Berronz." During his time in the magazine, he came to the idea of ??union money for investment purposes, so in 1927 he resigned from the bastard of the newspaper to run to $ 25,000 made by friends and family.

Style investing Carre was in finding the value and ownership of it for a long time. As for the closely fund managers looking for fast mosquitoes, which held shares in only a matter of days or weeks later, he called their strategy "tip of stupidity." He advised to look for investment ideas in your immediate environment. For example, he happened to use the soap "Nyutrodzhina," it pleased him, and he began buying shares of the company. In the end, the company, "Johnson & Johnson," has bought the company from him in 33 mosquito per share - Carre paid $ 1.

In contrast, Philip Fisher, carefully studied the company, Carr never felt the need to know the leaders of all the companies in which he invested, but he really liked it when managing a large number of shares owned. And he hated the overly optimistic estimates of annual reports, preferring that they were moderately pessimistic. Carr sought the leading companies in its industry that are reasonably reinvest their money. "The company's management has only so much money at his disposal - he said. - If it pays dividends, I believe this is recognition of the failure. The company says we do not know where to invest money, therefore, the shareholders, we give them to you. In article "When speculation becomes an investment," he offers "Twelve Commandments speculator," including such as "Be swift to take losses, do not rush for profit."



Your articles are more relevant to speculative investment than a speculation, "- said one astute observer of the two spheres of activity ... In this charge the writer has to admit his guilt. Yuntse In all, not so easy to draw the line between investment and speculation, between speculation and gambling, to discuss the topic if speculation and, perhaps, in this regard, to persuade him to try some of the speculation of readers (which under other circumstances could leave the speculation to rest), it is much better for the average reader, and much less dangerous to the reader, capable of misinterpret what he reads, to discuss the kind of speculation in the border area of ??investment, the more dangerous and less useful form of speculation bordering on gambling.


Fantastic Features
Perhaps the average person that opens the margin account of $ 1,000, has at least a subconscious thought that if he did not double their money within the year, will be disappointed. If he could actually do so consistently and invest their profits in their operations, he would be richer than any living man is now less than twenty-five years. The above situation is absurd. In real life, a man who begins to speculate with thousands of dollars, or fails, or does something more than just the interest on their money, and gradually collect a modest state than he is older, so he probably will seek to take less risk and become more investor than the speculator.


Business Administration
Probably the best kind of speculation - is the one that most surely bring success and which is regarded as the business management of the fund. If the current trend of businesses to concentrate in large complexes is less likely that an ambitious individual will be the sole owner of the huge and powerful manager of a business enterprise. Still exist and there will always be possible for a genius business idea using the new management company or a new product with phenomenal success to be repeated in another area of ??Henry Ford's success with his cars or achievements FW Woolworth in his art retailers. Relatively few businesses can grow only out of profits, so even a genius of business is likely to sooner or later find himself serving a large group of shareholders. Anyone who has the talent of smaller order will almost certainly be in the position of manager of a salaried subordinate to a greater or lesser degree of control by others. However, the management of their personal funds of any individual can give to a business judgment and complete freedom of initiative.


PEOPLE, THE MATERIALS MONEY
What does a business executive? He manages people, materials and money looking for a way to control them, which the company will make a profit. If the enterprise will be more than fleeting success, it must be in their efforts to provide some real services to the public or converting materials into a form more useful to the final consumer, or providing them more easily accessible form. If you submit a speculator as a business executive, it is also possible to see how to manage people, materials and money. Money - the starting point of his enterprise, the materials are securities that it buys and sells, and people that directors and managers of companies whose securities it invests. Its materials are not transformed in his hands, but the performance of his purchases and sales tend to make them more or less accessible to the conservative investor. In the same way it indirectly affects the people who serve it. Remuneration and life directors and managers of even the largest corporations depend, ultimately, the satisfaction that their services enable smart speculators and investors who are interested in their securities. If the speculator finds evidence of incompetent management of the corporation, he can not "fire" him disagreeable management personnel, but it can express the tacit support of his dissent by selling securities of a corporation or leaving them unattended.


THE TWELVE COMMANDMENTS Speculators
In any enterprise, there are standards of governance. They can not be ignored by the entrepreneur, as well as in speculative investments can be formulated certain rules must be wise to follow if you are going to achieve success. The speculator never be successful if it is blindly trying to follow any set rules. There are always exceptions, it must urgently apply his mind in any given situation. However, with regard to the technical details ... can be summarized in several paragraphs, and it may be helpful.

Twelve Commandments of speculative investor can be expressed approximately as follows:

(1) Never hold fewer than ten different securities covering the five different business sectors.

(2) At least once every six months, revise your existing security.

(3) Keep at least half of all assets in income-generating securities.

(4) In the analysis of stock returns as a treat for the least important factor.

(5) Be swift to take losses, not in a hurry to produce profits.

(6) Do not invest more than 25% of the fund in securities for which detailed information is not readily and regularly available.

(7) Avoid "inside information" like the plague.

(8) Facts are looking diligently, advice - never.

(9) Ignore mechanical formulas valuation of securities.

(10) When shares are quoted high, money rates rising, business is booming, at least half of the fund should be placed in short-term bonds.

(11) dole money and borrow only when the stock is listed low, money rates low or falling, and depression in business prevails.

(12) reserves a small portion of cash funds to purchase long-term options on stocks of promising companies whenever possible.


MINIMIZING CHANCE
This first rule requires a minimum standard of diversification. In speculation, as in investing, it is important that the fund was expanded in a few baskets. Diversification brings speculator three important results. It minimizes the factor of chance, sometimes admits mistake in the decision and minimizes the importance of unknown factors. As in any other area of ??human activity, the role of speculation is the case. Earthquake or some other unforeseen act of God can make a mockery of the very best of plans. However, no such accident does not affect all securities equally and diversification provides the best, which only can be protected from the effects of random factors. Mistakes are inevitable in the decisions. Even the most cunning speculator can in 20 - 25% of the cases come to the wrong conclusions from the data at hand. If he bets all of his fund in any one valuable paper on which his conclusion is wrong, he will suffer huge losses. On the other hand, 25 per cent margin of errors in decisions will not be affected seriously by a speculator who placed their commitments among ten different securities.

The most important factor that influences the price of any security at any given moment, an unknown factor. Even the president does not know all the factors affecting the real value of its securities. A speculator must allow at least a significant unknown factor, even for companies that publish frequent reports on their condition and honestly trying to keep its shareholders and the public fully informed about their cases. With sufficient diversification of these unknown factors affecting the single securities offset each other. Torture, have occurred because of an unknown factor in one case, will be balanced by an unexpectedly large gains in another.


Psychological difficulties
The usual advice an investor - to view their assets in search of vulnerabilities at least once a year. Speculator, of course, will monitor their assets more closely. The second rule means more than just a cursory review of the list of commitments and their calculations show the unrealized gains or losses. This means that the speculator should try again as deeply as possible impartially analyze each exposure. Psychologically it is very difficult to do, that is, impartially consider an enterprise in which he has ventured to invest their funds. Nevertheless, the speculator should take some effort to just do it. For example, if he has 100 shares of the company, which sold at 90, he should not pay attention to the price he paid for them, and ask yourself the question 'If today I had $ 9,000 on the purchase of securities, selected Would I prefer these shares in any of the thousands of other available securities to me? " If the answer is strictly negative, he should sell the stock, in this regard has not the slightest importance, whether stock 50 or 130. It is a fact that is absolutely irrelevant, but the ordinary individual would give him a big difference.


BE PATIENT
We do not advise a speculator to make this process re-analysis is much more frequently than once every six months. If he tries to do it more often, you probably fall into a vicious and usually fatal habit of frequently changing their obligations. One of the main qualities of a successful speculator - patience. The market for this promotion can take years to reflect in any way greatly value that accumulates on it. In the case of the railroad, "Southern reylvey" after twenty years of investment earnings back into the property, followed by an increase of its common stock from 25 to 120 within two years. Careful analysis can detect the value much higher than the market price of the shares. The market can not reflect this cost, as long as needed boost will give a combination of a bull market and changes in dividend policy. Even in a bull market rally may be solid for weeks or months daunting to trudge at the end of the procession. The trader, always looking on the market "action" during the bull move will tend to jump from one stock to another, to discover at the end of that made much less money than they could have done, putting them in ten or a dozen carefully otobryp1yh at the beginning of the shares and not to part with them ...


THE IMPORTANCE OF INFORMATION
Rule number 6 gives an even greater value the importance of the "unknown" factor in the analysis of the security. As long as he is dealing with an unknown factor, the speculator risks. He must try all means to reduce the element of risk to a minimum. To do this, it should limit its transactions for the most part those securities, for which he may receive, at fairly frequent intervals and with a minimum of difficulty adequate information. There are many good stocks, which lack the necessary information available, and often they make money. In cases where the information is favorable or forthcoming with sufficient information, some effort, it may be advisable to buy such shares, but realistic politics - it's too much non-deployment of the fund in shares of this type.

Sometimes you take some effort to get quality information. For example, some small industrial company publishes the only annual summary balance sheet in the form of information to shareholders about their operations. Few years, the balance sheet showed accounts receivable, too big for the scale of the enterprise. This finding suggests that the action is not such a bargain at a price equal to half of the net liquid assets, despite the good earnings and dividends. One reporter - shareholder - visit the 1926 annual meeting of shareholders. He and another shareholder who is not part of the company, which is also worried and came to the meeting will look at the detailed balance sheet, he (the report) shows that at December 31, 1925 over two-thirds of accounts receivable accounted for U.S. treasury notes. Thus, the action was truly undervalued, although reports of the company, in one easily accessible form, created serious doubts about the value of the company.


WHEN Cynicism Pays
Cynics will probably have a few friends, but a cynical approach, described in rule number 7, will save the trader from a variety of losses. Wall Street is full gullible individuals who are ready to believe The wildest rumors. When the spring of 1930 shares some entertainment company has doubled at every corner smartly provides an assessment of its profits that exceeded 50% rate, ukaeannuyu in the official report for the previous six months. After a spectacular fall as stock prices in the next four months, fans have been rumors just ready to believe that the company is only a step away from bankruptcy.

Vanity plays a large role in mR readiness with which traders have become a victim of the alleged "information from reliable sources" on joint operations, and mergers, the disclosure of secret processes of the upcoming financial and other business secrets. Obtaining such information confidential, according to an ordinary trader who makes it stand out from the crowd ignorant. However, if he has enough humility to believe that he may soon thousandth, not the first or second person, hearing this bull bike, this lack of pride is likely to be well rewarded.

There is one exception to this rule. Perhaps the anonymous author of a bear ears, heard during a strong market, a philanthropist. These tips are rare, much more trust worthy than the bullish propaganda, widely circulating at the peak of the market.


Everyone decides for himself
No one has ever made his fortune by following the advice of others. This is the foundation of the eighth rule. White examiner may indicate how technological improvements in their business, but no more. The responsibility for success or failure of business should rest ultimately on the energy, character, ability and power solutions of one man.