The Intelligent Investor_ The Definitive Book on Value Investing - Benjamin Graham [114]
We take a more critical attitude toward the widespread custom of asking investment advice from relatives or friends. The inquirer always thinks he has good reason for assuming that the person consulted has superior knowledge or experience. Our own observation indicates that it is almost as difficult to select satisfactory lay advisers as it is to select the proper securities unaided. Much bad advice is given free.
Summary
Investors who are prepared to pay a fee for the management of their funds may wisely select some well-established and well-recommended investment-counsel firm. Alternatively, they may use the investment department of a large trust company or the supervisory service supplied on a fee basis by a few of the leading New York Stock Exchange houses. The results to be expected are in no wise exceptional, but they are commensurate with those of the average well-informed and cautious investor.
Most security buyers obtain advice without paying for it specifically. It stands to reason, therefore, that in the majority of cases they are not entitled to and should not expect better than average results. They should be wary of all persons, whether customers’ brokers or security salesmen, who promise spectacular income or profits. This applies both to the selection of securities and to guidance in the elusive (and perhaps illusive) art of trading in the market.
Defensive investors, as we have defined them, will not ordinarily be equipped to pass independent judgment on the security recommendations made by their advisers. But they can be explicit—and even repetitiously so—in stating the kind of securities they want to buy. If they follow our prescription they will confine themselves to high-grade bonds and the common stocks of leading corporations, preferably those that can be purchased at individual price levels that are not high in the light of experience and analysis. The security analyst of any reputable stock-exchange house can make up a suitable list of such common stocks and can certify to the investor whether or not the existing price level therefor is a reasonably conservative one as judged by past experience.
The aggressive investor will ordinarily work in active cooperation with his advisers. He will want their recommendations explained in detail, and he will insist on passing his own judgment upon them. This means that the investor will gear his expectations and the character of his security operations to the development of his own knowledge and experience in the field. Only in the exceptional case, where the integrity and competence of the advisers have been thoroughly demonstrated, should the investor act upon the advice of others without understanding and approving the decision made.
There have always been unprincipled stock salesmen and fly by-night stock brokers, and—as a matter of course—we have advised our readers to confine their dealings, if possible, to members of the New York Stock Exchange. But we are reluctantly compelled to add the extra-cautious counsel that security deliveries and payments be made through the intermediary of the investor’s bank. The distressing Wall Street brokerage-house picture may have cleared up completely in a few years, but in late 1971 we still suggest, “Better safe than sorry.”
Commentary on Chapter 10
I feel grateful to the Milesian wench who, seeing the philosopher Thales continually spending his time in contemplation of the heavenly vault and always keeping his eyes raised upward, put something in his way to make him stumble, to warn him that it would be time to amuse his thoughts with things in the clouds when he had seen to those at his feet. Indeed she gave him or her good counsel, to look rather to himself than to the sky.
—Michel de Montaigne
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