| What exactly does a stock market formula do? | | | | to improve their profit performance in the market as |
| Stock traders have been using and developing | | | | are larger investors, and there is no particular |
| formulas since the birth of the stock market. A | | | | disadvantage in having a small portfolio when you use |
| summary of a formula's usefulness includes two main | | | | a formula. |
| functions that it fulfills. | | | | All investors -- large, small and medium-size -- are in |
| First, over a full stock market cycle, it will improve | | | | the same basic quandary. They would like to be sure |
| your investment profits without the application of | | | | of what is going to happen to their capital, and so |
| any thought whatever on your part. As is well | | | | are inclined to appreciate the features of |
| known, there are many investors who do not believe | | | | fixed-income investments such as savings accounts, |
| that the market will ever go through a full cycle again | | | | bonds and commercial paper. |
| -- that the direction of the market is in a permanently | | | | In such investments, their capital is guaranteed, and |
| upward movement, except for temporary, minor | | | | (except in the case of savings accounts) so is their |
| dips. It might be worthwhile to point out, without | | | | interest. On the other hand, there are few |
| seeming to be too pessimistic, that there are some | | | | opportunities for appreciable profits in these areas, |
| good arguments against an indefinite continuation of | | | | and no protection against a decline in the value of |
| bull markets. | | | | the dollar. Consequently, they are attracted by the |
| The second purpose of a formula -- apart from the | | | | characteristics of common stocks, where neither |
| question of profiting from complete market cycles -- | | | | their capital nor their return is guaranteed, but which |
| is to provide a means of profiting from more minor | | | | offer substantial opportunities for profits through |
| fluctuations. It is undeniable that the market will | | | | capital gain. |
| continue to fluctuate, and a formula allows the | | | | How to resolve the dilemma? It is obvious that the |
| investor to benefit from these fluctuations by | | | | great difficulty with the stock market is its |
| specifying conservative investment policies when the | | | | uncertainty. One workable suggestion of reducing the |
| market is relatively high, and more aggressive policies | | | | damage this uncertainty can do has been often |
| when it is relatively low. | | | | made: don't buy common stocks at all. Most investors |
| Since formulas ordinarily appear rather complicated, | | | | tend to regard this idea as, although practical, rather |
| can the small investor profitably use them? The | | | | extreme, and are reluctant to abandon the |
| answer is definitely yes. | | | | possibilities of profit that exist in common stocks. |
| Some formulas are complicated, it is true, and you will | | | | The formula idea is simply a form of protection |
| undoubtedly find some that are so complex as to be | | | | against uncertainty. Formulas are designed to allow |
| unsuitable for most investors. But most formulas do | | | | the investor to profit from the advantages of |
| not fall into this category. The most widely used | | | | owning common stocks, while providing a measure of |
| formulas today, in fact, are based on extremely | | | | protection against their handicaps; to give some of |
| simple principles and can be used by anyone with a | | | | the stability offered by fixed income investments, |
| rough knowledge of grade-school arithmetic. Special | | | | while not condemning the investor to a low return on |
| measures to adapt formulas to the needs of small | | | | their money. The whole point of formulas is to make |
| investors will need to be investigated, but it is worth | | | | the best of both these worlds. |
| noting that small investors are just as likely to want | | | | |