Mistakes
To Avoid!
There are fads and styles in the stock market
just as there are in women's clothes!
These can, for as much as several years at a time,
produce distortions in the relationship of existing prices to real values
almost as great as those faced by the merchant who can hardly give away
the high quality knee length dresses
in a year when fashion is to the ankle.
These investment fads and misinterpretations of facts
may run for several months or several years.
In the long run, however, realities not only terminate them,
but frequently, for a time,
cause the affected stocks to go too far in the opposite direction!
The ability to see through some majority opinions and to find
what facts are really there
can bring rich rewards in the field of stock investing.
There is one factor which all of us can recognize and which can
help in not just following the crowd.
This is the realization that the financial community
is usually slow to recognize a fundamentally changed condition,
unless a big name or a colorful single event
is publicly associated with that change.
The ABC Company's shares have been selling at a very low price,
in spite of the attractiveness of its industry,
because it has been badly managed.
If a widely known man is put in as the new president,
the shares will usually not only respond at once,
but will probably over-respond.
This is because the time it takes to bring about basic improvement will
probably be overlooked in the first enthusiasm.
However, if the change to a superb management
comes from little-known executives,
months or years may go by during which the company will still have poor
financial repute and sell at a lower ration to earnings.
Recognizing such situations,
prior to the price spurt that will inevitably accompany
the financial community's correction of its appraisal,
is one of the first and simplest ways in which the investor
can practice thinking for himself rather than following the crowd!
What is Securities Fraud?
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