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Chapter 21: Supervision of Investment Holdings

Prior to the 1920-22 depression a sound investment is one that could be bought and forgotten except on coupon or dividend dates. Hence, a periodic examination of holdings is necessary but this might pose a serious problem for the fixed income investor. Since a large effort is required to gain a small overall advantage of about 1% in yield over US Government bonds while still being exposed to loss, a plausible argument can be made against advisability of fixed value investments in general. Graham suggests three possible approaches to deal with this:

a)    US Savings Bonds or Treasury Bonds – at the time the only sensible alternative.

b)    Speculative operations – suggests this is likely to prove disastrous.

c)    Search for exceptional combination of safety of principal with a chance for substantial profit – a suitable field but dangerous objective for untrained investor, since, he can be readily persuaded that safety exists where there is only promise.

The investor should not be his own sole consultant unless he has training and experience sufficient to quality him to advise others professionally. In most cases he should at least supplement his own judgment by conference with others.

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