Separate and distinct things not to be confused, as every thoughtful investor knows, are really worth and market price.
No buyer considers all securities equally attractive at their present market prices whatever these prices happen to be; on the contrary, he seeks “the best at the price.
” He picks and chooses among all the stocks and bonds in the market until he finds the cheapest issues. Even then he may not buy at all, for fear that everything is too high and nothing will give him his money’s worth.
If he does buy, and buy as an investor, he holds for income; if as a speculator, for profit. But speculators as a class can profit only by trading with investors.
To whom they can sell only for income; therefore in the end all prices depend on someone’s estimate of future income.
Of investment 2 value in this sense some men will make one estimate, others another, and of all these estimates only one will coincide with, the actual price, and only one with the true worth.
Our problem, therefore, is twofold: to explain the price as it is, and to show what price would be right. Part I of this book will deal with the first question, Part II with the second.
If the investor chooses his holdings wisely, he can make quite as much money as the speculator. In fact, he can probably make more, or so it would seem from the history of great fortunes.
But to buy when security goes below its true worth, and to sell when it goes above it, is not enough to constitute wise investment.
Such a policy would put the buying and selling points very close together, and in the end, would yield no more than pure interest on the fund so invested.
