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Chapter 51: Discrepancies between Price and Value (Continued)

The practical distinction between leading and secondary common stocks have their counterpart in the field of senior securities as between seasoned and unseasoned issues. A seasoned issue may be defined as an issue of a company long and favorably known to the investment public.

7.    Price Inertia of Seasoned Issues: The price of seasoned issues is often maintained despite a considerable weakening of their investment position. This is due to inertial and lack of penetration of the typical investor. He buys on reputation rather than by analysis and he holds tenaciously to what he has bought. Hence holders of long established issues do not sell them readily, and even a small decline in price attracts buyers long familiar with the security.

8.    Vulnerability of Unseasoned Issues: Unseasoned issues are very sensitive to adverse developments of any nature. Hence they often fall to prices far lower than seem to be warranted by their statistical exhibit. This vulnerability of unseasoned issues gives rise to the practical conclusion that it is unwise to buy a new unseasoned bond or preferred stock for straight investment. He should favor such issues only when they can be bought at a frankly speculative price.

9.    Discrepancies in Comparative Prices: It seems much simpler process to decide than issue A is preferable to issue B than to determine that issue A is an attractive purchase in its own right. Graham cautions against any quick acceptance of a purely quantitative superiority. The future is often no respecter of statistical data.

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