Investing: Identifying A Growth Situation Continued

With regard to investment value we may state without equivocation that the so-called "growth" stock is often of greater interest to the younger and more aggressive type of investor, rather than the older and more conservative. The latter is more concerned with safety of both principal and income, while the former possesses the dynamic qualities and the longer life span during which his judgment may be vindicated.

At the same time we must hasten to add that most growth stocks carry with them a somewhat higher degree of speculative risks, since the investor is actually taking a chance as to whether the growth will eventually be realized.

Capital appreciation has become a worthy objective in the minds of some people in recent times because of the difference of tax treatment involved. Ordinary income is fully taxed, but the tax on long-term (over six months) capital gains is based upon only 50 per cent of the amount of the gain. Thus the investor may feel that the higher risk may be at least partially offset by a decided tax advantage. For those of considerable means this is certainly true; for those of modest means it may not bulk so large, but it is still worth considering. Since all investors are not alike, the purchase of "growth" type equities is a matter for individual decision.

Various studies have been made of the strong advantages in the ownership of common stocks, and one need not go far a field to find heated arguments in print regarding the relative merits of stocks versus bonds. Indeed, a very strong case may be made for either. While such studies are of interest, there is no need for the smaller investor to be carried away by extravagant claims; some of the success indicated by some writers has much to do with the all-important element of proper timing, and this is obtained only by education, experience, and the building of a certain amount of "know-how"; this is best left to those who spend their entire time in this field and make a profession of it.

If we exclude pure speculation (something which cannot be recommended) there seems to be no good reason why the investor of modest means cannot achieve a reasonable degree of success by following the program previously outlined. Many have done so. He will, it is true, have to undertake a certain period of training. Investment, as a specialized field, has its own language and a very extensive literature, and it will take some considerable amount of time to become familiar with it.

Careful supervision must also be practiced in order to insure a reasonable amount of success, and it must be remembered that this has to be continuous. There is no such thing as purchasing securities, whether they be stocks or bonds, and then completely ignoring them. Conditions are always in a state of change, and these changes may be reflected in the safety, value, and return to be realized from the investments themselves. More detailed treatment of the various types of investment is to be found in the chapters that follow. The 60-40 system described above is a step in the right direction.