science of stocks (2)

5- Are there then no good tricks? Alas, few indeed. because inflation and growth push the country ahead. a random investment will probably show capital gains in the long run. Not much more can be said.
Statisticians have demonstrated that the day-to-day changes in stock prices are very much like a"random-walk"-like the Brownian motion you see in a microscope due to the chance impacts of invisible and unpredictable atoms on on just-visible huge molecules or colloidal particles. Wall street dos n‘t believe this random-walk theory, but the PhD.D is in the business schools laugh at their disbelief. (computer calculations show that the "gun-slinging performers" do better than the averager in rising bull market; they pat for this by doing worse in falling bear markets. why? because the performance-happy money managers tend to buy stocks that are volatile in both directions-highly leveraged Chrysler versus General Motors, Memorex versus IBM or study AT&A.)
6- to have unusual performance,you must be able to predict increases in the per share earnings of companies before the marketplace in general is aware of them. After is too late. for each stock tends to sell at certain "price-earnings multiple"-e.g., standing and cyclical U.S. Steel at 12\1, glamorous IBM at 40\1. and if you are correct in foretelling an unanticipated rise in earnings, the market will probably mark up the stock price once those earnings become visible. (As a kicker, IF you are early in recognizing an area of glamorous earnings growth, you may find the market putting higher and higher price-earning multiples on your holdings-and after that has happened, it is a good time to get out. Describing this " greater fool theory," in which you hope to unload on some other sucker is easier than for all to practice it successfully.)
7- the above strategy of anticipating changes in earnings is easy to state, but practically impossible to put into practice even if you have a vast research staff and inside management contacts. Hence, unless you like the fun of investing your own money-and are willing to pay something for that fun in the from of bad performance-most amateurs would be well advised to buy shares in some mutual fund. A mutual fund buys 30to100 stocks deemed best by professional money mangers and gives you your prorated share in them. if the market goes up, your mutual fund shares will probably go up; but it works both ways. ( WARNING: Most mutual funds are sold by salesman who get a fat commission for doing so-usually an 8 per cent "load" skimmed off your principal. Through the mail you can buy no-load funds involving no sales commission at all, and which experience shows do about the same on the average as the heavy-load funds. How do the no-loads manage this? Simply by paying the same management fees to money managers but cutting out the selling expenses-the equivalent in finance of the " discount retail store" that quotes low prices for cash-and-carry. you can recognize no-loads on the financial pages by equality of bid and asked. )
for an amusing, but well-informed, account of the modern stock market, the reader might refer to the money Game (random House,New York,1967) by "Adam Smith," or to Smith is Super money (Random House, New york 1972);or to Burton G. Malkiel, A Random walk Down wall street (Norton, New York,1973).