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Hi Everybody,

Here's a further look at Chapter 8. I think that this chapter is one of the most helpful to successful investing.

Previously in the chapter, Ben Graham expressed his doubt upon using timing to successfully purchase common stocks. He goes on to state,

" There is one aspect of the timing philosophy which seems to have escaped everyone's notice. Timing is of great psychological importance to the speculator because he wants to make his profit in a hurry. The idea of waiting a year before his stock moves up is repugnant to him. But a waiting period, as such, is of no consequence to the investor. What this means to the investor is that timing is of no real value unless it coincides with pricing - that is, unless it enables him to repurchase his shares at substantially under his previous selling price.

We are convinced that the average investor cannot deal successfully with price movements by endeavoring to forecast them. But the question remains can he befit from them after they have taken place - i.e., by buying after each major stock market decline and selling out after each market major advance?

Nearly all the bull markets had a number of well-defined characteristics in common such as:

1. A historically high price level.
2. High price/earnings ratios.
3. Low dividend yields as against bond yields.
4. Much speculation on margin.
5. Many offerings of new common stock issues of poor quality.

Thus to a student of stock market history it appeared that the intelligent investor should have been able to identify the recurrent bear and bull markets and to buy in the former and sell in the latter.

But it seems unrealistic to us for the investor to base his present policy on the classic formula - i.e., to wait for demonstrable bear market levels before buying any common stocks. Our recommended policy has, however, made provision for changes in the proportion of common stocks to bonds in the portfolio, if the investor chooses to do so, according as the level of stock prices appears less or more attractive by value standards.

In the early years of the stock-market rise that began in 1949 - 1950 considerable interest was attracted to various methods of taking advantage of stock market cycles. These have been known as "formula investment plans". The essence of all such plans - except the simple case of dollar cost averaging - is that the investor automatically does some selling of common stocks when the market advances substantially.

This approach had the double appeal of sounding logical and conservative. Unfortunately, its popularity grew greatest at the very time when it was destined to work least well. Many of the "formula planners" found themselves entirely or nearly out of the stock market at some level in the middle 1950's. True, they had recognized excellent profits, but in a broad sense the market ran away from them thereafter, and their formulas gave them little opportunity to buy back a common stock position.

The moral seems to be that any approach to money making in the stock market which can be easily described and followed by a lot of people is by its terms too simple and too easy to last."


I think that this portion of Chapter 8 brings out a few important points. Namely, Price is paramount, patience is necessary, and though successful investing is not rocket science it does take some effort, knowledge and practice.

Jim Rogers, a successful investor, summed it up pretty well from the book, "The New Money Masters" by John Train.

"One of Rogers key ideas in buying stocks is to insist that the stock must be so cheap that even if everything goes wrong the worst that can happen is that your capital will be dormant for awhile. One of Rogers primary rules is. "Don't lose money. If you don't know the facts don't play."

Rogers says, "Take your money, put it in T-Bills or a money market fund. Just sit back, go to the beach, go to the movies, play checkers, do whatever you want to. Then something will come along where you know it's right. Take some of your money out of the money market fund, put it in whatever it happens to be, and stay with it for three or four or five or ten years, whatever it is. You'll know when to sell it again, because you'll know more about it than anybody else. Take your money out, put it back in the money market and wait for the next thing to come along. When it does again, you'll make a whole lot of money." "

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ZB- I just want to thank you for the chapter reviews you post. I made a resolution to to invest new money until after I finished reading this book. I am now starting chapter 15 and my eyes are wide open. I think I will finish this book and go on to Phil Fishers book before investing further.

thanks again. your posts are a great review.
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I want to reiterate WEB students sentiments. Thanks Zen for your summaries. Even though I haven't posted a while on this board, I am still lurking. Your posts are what draw me back. Appreciate your efforts. A while back I posted that I set up a portfolio of stocks that are selling at 2/3 NCAV. Well since I bought them they have performed below the market performance but as of late have made a run at catching up to the market as a aggregate whole. I have not held my positions for over a year yet, I bought most of those stocks back in September and October of last year. But it will be interesting to see how they play out against the market over time. I will keep you all posted.

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