Investors should put most of their money into fairly big growth
stocks, Fisher maintains. How much is “most”? It could be 60 percent
or even 100 percent, depending on the investor.
In general, don’t wait to buy. Buy an outstanding company now.
What if economists fret that a recession is coming, citing all sorts of
worrisome numbers? Economic forecasting, Fisher argues, is so unreliable,
you’re better off just ignoring it. He compares it to chemistry
in the days of alchemy.
Obviously, if you buy a growth company when it’s somewhat
cheap, you’ll wind up doing better. So “some consideration should
be given to timing.” For example, management might have made a
mistake in judging the market for a new product, causing earnings
and share price to fall off the table. Or a brief strike has hit the company.
During this time, management was buying shares like mad, but
the stock price kept retreating. Another good time to buy.
Clearly, an investor must make sure that management really is capable—
and that a company’s troubles are short lived, not permanent.
What if yours is a modest portfolio and you are nervous about
stashing your savings into the stock market in one fell swoop?
What if a business bust came along? Fisher advocates dollar-cost
averaging—investing regularly over a period of time. Beginning investors,
after having made a start buying big growth companies,
“should stagger the timing of further buying. They should plan to
allow several years before the final part of their available funds will
have been invested.”
Fisher advocates patience. “It is often easier to tell what will
happen to the price of a stock than how much time will elapse before
it happens.” In other words, stay the course. You may just be a
quicker thinker than other investors, and you’ll just have to wait
until they catch up to you. Occasionally, he warns, it may take as
long as five years for excellent investments to reward you for your
perseverance.
When to Sell
In a classic statement, Fisher wrote: “If the job has been done correctly
when a common stock is purchased, the time to sell it is—almost
never.”
Only three reasons exist for selling the stock of a company previously
judged outstanding:
1. The original purchase was a mistake. Trouble is, we may
not be ready to come clean. “None of us like to admit to himself
that he has been wrong.” He goes on: “More money has
probably been lost by investors holding a stock they really
did not want until they could ‘at least come out even’ than
for any other single reason.” (Fisher was thus anticipating
one of the theorems of the behavioral economists, that of
loss aversion.)
2. The company has changed. Maybe the quality of management
has deteriorated. “Smugness, complacency, or inertia replace
the former drive and ingenuity.” Forget about the nasty
capital-gains taxes you might pay. Sell. Then again, maybe the
company has simply aged, and so have its products and services.
The growth is no longer there. The company no longer
passes most of the 15 points. Again, sell. But now you can take
your time.
A good test: Will the stock climb during the next business
boom as much as it has in the past? If not, the stock should
probably be sold.
3. There’s a better buy out there. But this seldom happens.
Other reasons to hold onto a stock: The capital-gains tax. And
the fact that a stock that’s sold now just might soar during the
next bull market. And how is the investor to know when to buy
back in?
What if a stock is reported to be “overpriced”? Again, this is
mainly a matter of conjecture. Who knows what the earnings will be
two years from now?
What if a stock has made a big run-up—isn’t it time to sell now?
Hasn’t it used up most or all of its potential? Fisher’s answer: Outstanding
companies “just don’t function this way.” They tend to go
up and up and up. And you want to be there when that happens.
Read More : Buy And Sell - What And When To Do It ?
