The table comparing five companies for the three &...

2008-11-03T09:30:00.000+11:00

The table comparing five companies for the three "normal" 3-year periods of 1911-13, 1923-25, and 1936-38 is interesting. Of the five companies, only General Electric remains. Penn RR went bust in 1970-ish, and US Steel and AT&T went thru troubles in 2002-ish that, if they did not wipe out common shareholders, severely reduced the value of their holdings - details not recollected at the moment. I don't know what happened to American Can - perhaps it was merged with another enterprise which is presently hugely profitable - but at least three of the five chosen as primary companies in 1940 have now suffered disaster (for investors).

That illustrates how important it is to watch the investment basket. If it cannot be done personally, it should likely be entrusted to a manager who will notice developing trouble before it strikes. That is not necessarily a generic mutual fund manager in my opinion - too many of those are just followers. That manager's role is preservation of capital - not necessarily gains via trading, but keeping up with businesses and knowing when it's time to move on.

A few pages later, price changes in GE stock are illustrated. It is clear that some trading in and out would have been beneficial, vs a static buy-and-hold approach, even with the consequent tax liability of modern times.

I believe that can be done with an eye to value, ie working the ratio of price vs value, selling an issue whose price has approached value to buy an issue of comparable quality whose price is less than value.

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The table comparing five companies for the three &...