Spectacular performances are not confined to growth stocks. Another group worth watching is recovery shares. Most companies at some time or times in their careers strike a difficult patch, which may be the result of mismanagement, changes of fashion, excessive competition, a general slump, losses on raw materials or stocks, or some other factor. Some companies go to the wall in such circumstances. Others struggle along as shadows of their former glorious selves. And some – as a result of the turn of the trade cycle, reorganization, a change of control, or the infusion of new enterprise or products – recover fairly quickly, or after an uphill grind. A good example is the Rank Organization which after being successively hit by heavy losses on film production, and a big decline in cinema-going, boldly met its problems by reorganization and expansion into electronics, light engineering, and other forms of entertainment such as bowling alleys.
On appreciation of the recovery taking place and the future potential of the greatly diversified interests, the 5s. ordinary shares came out of the Stock Exchange ‘dog-house’ to become a long-term popular investment at some seven to eight times the price to which they had dropped when few financial experts had a good word for them.
Whatever the Mathematical formula or basic plan adopted, it is a good idea to take account of the following investment rules:
1. Spread the risk, particularly in equity shares, so that if one company or industry strikes a bad patch it does not affect the whole portfolio.
2. Be ready to switch. Never look on a portfolio as static. Even if it means selling at a loss, it is a sound policy to switch from an investment which is declining or static to one which is dynamic, and always be willing to Learn how to trade in new and innovative ways as this always helps.
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Gold shares demonstrate the effect of factors over which individual companies and entire industries have no control.The gold-mining industry, unlike other industries, has thus been hamstrung in its efforts to meet big rises in production costs. Although it now costs much more to dig an ounce of gold out of the ground, the dollar price is the same as in 1939.
Faith in gold shares has in consequence dwindled, until they are brushed aside as a waste of time or treated solely as gambling counters. Yet (political factors in the producing countries apart) any change of American policy resulting in a more realistic selling price would bring a big change in sentiment; gold-mining shares might then retrieve some of their lost glamour.
Price movements in the stock market as a whole, or among individual sections or currently popular stocks, are not always one way. Although it may appear that prices will continue in-definitely up and up – or down and down – sooner or later some-thing happens to halt or reverse the movement, A political or economic crisis may intervene; a speculative bubble which has started as a genuine investment move may be punctured by the pin of realism; or one of a dozen or more factors which can affect sentiment may begin to operate. While markets may carry optimism or pessimism to extremes, they have a knack of anticipating the red or green light. Timing of investment transactions is therefore important. Purchases of fixed-interest stocks before an almost certain increase in Bank Rate, for instance, would not be particularly wise; while on the other hand sales in advance of an almost certain reduction might be costly.
To jump on the’ band wagon of a bull market after it has been in progress for some time may call for thought: although individual equity shares or groups of shares may still look reasonably priced on the prospects which started the upward move, it may be wise to await a reaction before buying. There are always investors, or speculators, who overdo the optimism or pessimism. This is a good reason to be guided on investment timing by an expert – your stockbroker, or a way to define help with Analysing Stocks and Shares. A great resource for learning more about Maths, is the Mathematics at Google web page, which hosts a great knowledge base.
Framing the right investment policy in present conditions is not easy. The first major point to decide is whether the emphasis must be put on (a) immediate income or (b) capital growth. Re-tired people, or those nearing retirement, may have little choice but to opt for income. Younger investors, who are not dependent on income from savings, may however prefer to spread their holdings in ways which could add to the capital value and so enlarge their self-generated pension fund. Sometimes we need to be reminded that trading in stocks and shares is very similar to Mathematical Roulette, in that it is a gamble.
Other important points to take into account are the amount to be invested, or saved, and the risks which can or should be taken – all equities do not improve in value over the years; a quite high proportion lose ground.
Despite the attractions of a 100 per cent equity investment program it may therefore pay to follow the older policy of having part of one’s funds in fixed-interest stocks. The proportion will depend on individual needs, circumstances, and amount of capital. Whereas, in Mathematical terms for instance, 10-25 per cent might be enough where the emphasis is on growth, 50 per cent or more might be essential for those heavily dependent on investment income, it is wise to review Share prices. It is interesting to note in this respect that the investment experts who advise the successful clients of one big football pool favor a fifty-fifty policy.