Sound investment advice doesn’t change. Neither does investor worries or behavior. It may seem like it’s all new but it’s just being rewritten – slightly differently – over and over again. The books, articles, and stories just cycle along with the markets, where each new environment is an opportunity to update what was said in the past.
Case in point is a 100-year-old book (the link is below) I came across while digging for something else. Curiosity got the best of me – really it was an excuse to avoid work – so I browsed a few pages on investing circa 1917.
It’s always interesting to see how things were explained in the past. I thought I’d share a few century old ideas below:
Investing early, to grow and compound your money, is important. And preserving that money, so you have enough to live off of, is just as important later in life.
Different types of investment are appropriate for the different ages of a lifetime. It is proper for a young man to seek investments in growing regions, in young cities and in businesses of a promising future. The natural increase of population, operating thru a couple decades will both increase his capital, thereby accomodating the increasing expenses of middle life, and will enhance security, as security should be enchanced in the investments of later life.
The idea of setting aside enough money for emergencies – so you don’t need to sell investments – is not new. Neither is asset allocation, using “good bonds” as the protective portion of your portfolio, or taking advantage of changes in the market cycle.
The average capitalist will keep by him a given sum in savings bank deposits, available to meet sudden contingencies…Another portion may be invested in good bonds, to serve as a nest egg, if both business and speculative capital were destroyed. A final percentage may be employed to take advantage of the fluctuations of prices, on the principal of converting holdings at the top and bottom of the major long swings of the stock market.
And diversification – across different companies, industries, countries, and assets – is still a great way to reduce risk.
Another means of eliminating hazard is to divide holdings so that they wil be subject to different principles of fluctuation, and so the losses of one part will be nuetralized by the gains of another part. Distribution, subdivision, or averaging of risk may be with reference to individual businesses…It may be with reference to branches of industry…or it may be with reference to regions and countries…
As the market cycles, it’s important to understand the changes in risk and reward and how the typical investor mistakenly behaves at the top and bottom.
The difficulty of conversion comes at the top. When the investor is filled with enthusiasm he is asked to cut down his income by purchasing gilt-edged bonds and notes of low yield. This loss is less, however, than the loss of holding securities much affected by business conditions thru a crisis or major reaction. Furthermore, such a conversion of holdings is indispensible for getting the ready funds with which to buy at the bottom.
The employment of the rule just mentioned calls for the investor to go against his natural inclination. He is selling when securities seem most profitable, and buying when they seem worth least. Thru the diligent study of conditions the investor must shake himself clear of the impression that market prices and the values of securities to him personally, correspond.
A little research – understanding an investment – is still the best way to avoid huge losses.
A chief cause of the troubles which arise in operating a business is lack of thoroness – thoroness in the mastery of the essential factors of any situation, in preparation before action, in the choice of a location, in the analysis of processes, in providing for all contingencies in contracts, leases and options, and in the study of the markets. Similarly, a lack of thoroness in investment is the prolific mother of losses.
To put capital into an enterprise which has not yet a proved earning power is not investing but promoting.
That research goes a long way when looking into the history of dividend stocks.
The dividend record is of no value for short periods and resort should be had to the record of earnings, because many disastrous failures have resulted from stripping a company of its working capital to pay dividends. Such a stripping process cannot be continued for a long time, however, so a long dividend record is a high merit. It is reasonable to ask for the record of dividends thru the last panic or depression.
The real test is not the dividend record, but surplus earnings over fixed charges, and the soundness of the judgement displayed in employing them.
Just make sure the research you do, doesn’t morph into a habit of constantly changing your portfolio for the sake of change or because some event creates a need to do something.
…he should avoid forming the habit of ruminating daily on the shifts he can make in his securities.
All active traders tend to be swerved from accurate calculations by market rumors, tips and the desire to do something, even tho an intelligent course of action cannot be laid out for the moment.
Finally, expect the unexpected. History shows a recurrence of unexpected events and other things to worry about that negatively impact the market, but only briefly.
The security market is the most perfect organization extant for discounting the effect of expected futured events but notwithstanding this, the unexpected is always happening. Such accidents were the Union Pacific corner of May 9, 1901, the McKinley assassination, the crop failure of 1901, the Balkan Wars, the Norther Securities suit of 1903, and the San Francisco fire of April 1906. Such events usually cause only biref effects, if business conditions are sound, but they are more serious when they reenforce a previously existing downward trend.
The terms may have changed but the advice is still the same.
Modern Business: Investment