As I mentioned last time, I had lots more free time in the Army than I had had as a civilian. Back in the States, I had worked five days a week at the bank, and also went to School four nights a week from roughly 6:30 P.M. to 9:30 P.M. So, most of my free time then was spent on homework and traveling time 2 hours per day. One of the books that I sent for from the States was called ‘The Battle for Investment Survival’ by G.M. Loeb. I currently have a 1988 edition, which I see is in its 19th printing. It was originally published in 1955, the year I went in the Service. The author, Gerald M Loeb, made his first stock purchase before 1920 and his forward to my current edition was from the summer of 1965. The title describes just what life in Wall Street is like. Basically, you have no friends. What you read is usually there to make you do the wrong thing and as for brokerage ‘advice’, just ask the ENRON shareholders. ENRON’s brokerage firm rated it a strong buy all the way down from $85 to $3 1/2, before switching to a hold. If you had followed that advice you would be looking at 31 cents yesterday, November 29.
In Loeb’s ‘The Battle for Investment Survival’ each chapter is just a couple of pages with the material drawn from the column he wrote for the brokerage firm where he worked. A couple of the Chapter headings are as follow.
Tip to the investor: always write it down
Loeb said that as young man in his early twenties, he was initiated into writing down the pros and cons before making any stock purchase or sale. This had been suggested to him by an investor who had amassed many millions. Loeb said that in 40 years of investing in stocks, his major successes were invariably preceded by some type of written analysis. I have always suggested that other people should do likewise. Sudden emotional decisions that he made were generally disappointing. If you get a tip from the brother in law that XYZ will be taken over next week and it does not happen, then sell as the reason you bought the stock no longer exists.
Investment and taxation
Loeb said that it was wrong to consider tax liabilities in a decision to sell or not sell a stock. He said that if a stock is bought at $100 a share and moves up to $140, the owner at no time has a 40 point profit. He has a 40 point gain less the tax, whatever it might be. I know of an investor who refused to sell her Enron over $80 because her accountant had told her about the tax she would have to pay. Her 2,400 shares were worth over $192,000 at the time she took that decision and now they’re worth just $744.
You can’t forecast but you can make money
Loeb notes he once read that a meeting of economists had agreed that if their forecasts were 33 1/3% correct, that was considered a high mark for their profession. He further notes that when the forecasts for 1949 came out, he took out the forecasts for 1948. Right on top was a forecast that 1948 would generally be a crummy year for the Radio stocks, but as it worked out, they turned out to be the popular Television stocks by the end of the year. He said he could go on citing such examples indefinitely. The point here is that you really have to do your own homework and you cannot delegate it to someone else.
Further technical observations
In this chapter he mentions "Shakeouts" on the way up that literally "shake out " investors from good stocks. He also talks about buying and selling climaxes in this chapter and up and down Specialists books. Later on, we'll talk about the Specialist. Leon Levy brought one to our class as a guess.
At that time, I had no knowledge of Technical Analysis, but it planted the seeds in my mind. The branch of City College that I went to was called the "Baruch School", and was named after Bernard Baruch, a very, very famous financier who also was the confidante of several U.S. Presidents. A book sold back then was advertised as the Book that kept Baruch out of the 1929 crash. Later we’ll take a look at this book and at the terrific knowledge of Baruch himself. By the way, he was born in 1870 and died in 1965 despite all the stresses and strains of Wall Street. He was a man who knew a lot and did a lot.
Others of Loeb’s 78 chapters include, ‘What makes a Stock "Good"’, ‘Importance of Correct Timing’, ‘Detecting “Good Buying” or “Good Selling”’ and ‘Case History Examples’.
’The Battle for Investment Survival’ is still available in lots of places. A couple that come to mind are "Traders Press" 800-927-8222 and the Contrary Opinion Library 802/658-0522.
© Chartcraft Inc November 30, 2001