Battle for Investment Survival (Gerald Loeb) 0 comments

Gerald Loeb was a successful stockbroker turned newspaper columnist in the 1930s, when the Great Depression had taken its toll on a generation and converted them to a nation of stock skeptics. Gerald Loeb's beliefs that the investor should treat investment as being a battle where one has to be constantly vigilant and should be active in trading and out were apparently mainstream thinking during his time, quite possibly due to the bear that had been casting a dark pall over the market then. As John Rothchild (himself a well-known financial author) noted in his foreword to the book, many of his beliefs are antithetical to the now well-known "buy-and-hold" strategy; yet he recommends the book as a good read as there are many good points in Gerald Loeb's investment philosophy. As they say, there are many ways to skin a cat.

The book is divided into many short articles, each usually not more than four to five pages long. In each, Gerald Loeb discusses a particular issue, such as reading financial statements, reading the technical position of the market, cash allocation strategy, his views on diversification etc. There are 33 main articles and another 45 in his postscript section, the latter being drawn from his newspaper columns.

As always, when discussing such investment books the emphasis is placed on the author's philosophy. Gerald Loeb has a few key beliefs. His overall investment philosophy is that intelligent speculation is a preferable strategy to buy-and-hold. In asset allocation, his view is that having an ever-liquid account (ie. with plenty of cash) is preferable to being heavily in stocks, and that being concentrated in a few stocks is better than being diversified. In terms of stock selection, he views a downtrodden stock whose outlook the market is pessimistic about as the best kind to buy, in contrast to the blue chip stock which might already be fully valued due to market optimism. Also, he has a highly pragmatic view of stock valuation, where he notes that there are no real theoretical equilibrium prices that a stock should command; the investor must assess the overall position and mood of the market and take a general qualitative position of the price movement accordingly. The corollary of course is that he will not buy when the market's technical position is poor (ie. economy is on downturn and there is undergoing stock distribution).

Clearly his opinions are debatable in the context of today's mainstream views, yet for the investor who is always open to new ideas and does not restrict himself to one investment technique there is plenty to learn from Gerald Loeb. Clearly he does not see buying stocks for the dividends they bring, but rather, for the capital appreciation. And he picks downtrodden stocks whose capital appreciation potential is highest when they are revalued (due to prior pessimism turning to optimism) and he makes it clear the investor should be looking at doubling or more of the share price: this is a clear "low probability-high returns" strategy. And again it ties in with his investment philosophy, because the high volatility (both in price and fundamentals) of this kind of stock demands the active attention of the investor. His top-down approach to stock buying (ie. watching market movements before deciding whether to buy stocks) is an illustration of the belief that three factors influence share price: market, sector and company (and not just the last one), and also a way to insure that one does not "catch a falling knife". And like many great investors, he believes in concentrating firepower on a few stocks (he calls it putting all the eggs in one basket) rather than diversifying and spreading resources, and hence potential returns, too thin

As those who have read my last few reviews will have noted, my cheapskate strategy to read the book is to borrow it from a library, and this book is no different. Check it up on the NLB Catalogue.