Understanding Investing - The Beginning

Aside from personal factors, there are certain orderly steps to be taken toward possible success in the investment field. These may be summarized as follows:

1. Surplus funds must be accumulated, since no investments are possible without them. With proper planning this may be done; at the same time, though it is a means to a desired end, it should be carried out within reason and should never become a burden.

2. An over-all investment plan, the details of which are set forth in the section to follow, must be formulated.

3. Supervision is continually required in order to realize one's objectives. An investment program cannot be successful if you place securities in a box, turn the key, and then promptly forget them. Constant vigilance is necessary to preserve the program and to make it succeed. This means the continued study of economic conditions, political and social developments, financial reports, the behavior of the business cycle, taxation, and money rates. Most of the larger daily newspapers carry a financial page, the continuous reading of which is quite valuable in keeping up to date with developments in the field of current finance, while numerous magazines provide opportunities to keep abreast f the times in this and other fields. Constant review is necessary. Securities should be sold when strong quantitative and/or qualitative evidence dictates. Each security, no matter of what kind, presents its own problem, and all information which may have a bearing upon its investment soundness should be obtained where possible and should then be considered objectively. As investment program is never completely static and must be subject to change; it is not always possible to predict or evaluate completely the risks involved, since changes in economic, political, and social conditions may pose the need for new evaluation of any given security and a review of its current and future prospects.

The social aspect of investment has shown many remarkable changes. For example, after the great crash of 1929, the stock market was viewed with considerable distrust; but the far-reaching reforms made shortly afterward have brought about an entirely new attitude toward common stocks as an investment medium. Another example of a change in social attitude is in connection with bonds.

The strong promotion of U. S. Government Bonds (Savings Bonds) during World War II and afterward has educated the public in the feeling that bonds are not only for the well to do, but may be owned by anyone; actually, these bonds were especially tailored so as to be within reach of the small investor.

The few guiding principles set forth above may easily be followed by anyone, so that he may institute a program and follow it with a reasonable degree of success. We will now turn our attention to the basis of the program itself.