The investor should be aware that even though safety of its principal and interest may be unquestioned, a long term bond could vary widely in market price in response to changes in interest rates.
To have a true investment, there must be a true margin of safety. And a true margin of safety is one that can be demonstrated by figures, by persuasive reasoning, and by reference to a body of actual experience.
Whenever the investor sold out in an upswing as soon as the top level of the previous well-recognized bull market was reached, he had a chance in the next bear market to buy back at one third (or better) below his selling price.
Even the most conservative must realize that the recent transformation of surplus from an individual to a national disaster implies a scathing indictment of our capitalist system as it has now developed.
Experience teaches that the time to buy stocks is when their price is unduly depressed by temporary adversity. In other words, they should be bought on a bargain basis or not at all.
Even defensive portfolios should be changed from time to time, especially if the securities purchased have an apparently excessive advance and can be replaced by issues much more reasonable priced.
When somebody asserts that a stock has an earning power of so much, I am sure that the person who hears him doesn’t know what he means, and there is a good chance that the man who uses it doesn’t know what it means.
Most businesses change in character and quality over the years, sometimes for the better, perhaps more often for the worse. The investor need not watch his companies’ performance like a hawk; but he should give it a good, hard look from time to time.
