We are convinced that the average investor cannot deal successfully with price movements by endeavoring to forecast them . Can he benefit from them after they have taken place - i.e. by buying after each major decline and selling out after each major advance ????
The fluctuations of the market over a period of many years prior to 1950 lent considerable encouragement to that idea . In fact , a classic definition of a " shrewd investor " was " one who bought in a bear market when everyone else was selling , and sold out in a bull market when everyone was buying."
Nearly all the bull markets had a number of well-defined characteristics in common , such as (1) a historically high price level (2) high price/earning ratios (3) low dividend yields as against bond yields (4) much speculation on margin and (5) many offerings of new common-stock issues of poor quality . Thus to the student of stock market history it appeared that the intelligent investor should have been able to identify the recurrent bear and bull markets , to buy in the former and sell in the latter , and to do so for the most part at reasonably short intervals of time .
Nearly all the bull markets had a number of well-defined characteristics in common , such as (1) a historically high price level (2) high price/earning ratios (3) low dividend yields as against bond yields (4) much speculation on margin and (5) many offerings of new common-stock issues of poor quality . Thus to the student of stock market history it appeared that the intelligent investor should have been able to identify the recurrent bear and bull markets , to buy in the former and sell in the latter , and to do so for the most part at reasonably short intervals of time .
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