Wednesday , 16 August 2017

"The Battle for Investment Survival" – One of the 10 Best Investment Classics of All Time

The reason why I think this is an important book that deserves to be among the ten investment classics I’ve selected is that the time in which Loeb wrote it is very much like our own time. I believe that, to every thing in the stock markets, there is a season. A time to buy and hold and a time when buy and hold will destroy your ability to recover. There are vocal advocates for buy and hold and there are vocal advocates for being willing to be nimble and trade – but both biases stem from the type of market in which the proponent spend his or her “formative years” and neither are appropriate for “the other” type of market. Words: 1440

Lorimer Wilson, editor of, provides below further reformatted and edited [..] excerpts from Joseph Shaefer’s ( original review* for the sake of clarity and brevity to ensure a fast and easy read. Shaefer goes on to say:

[I must confess, up front, that] “The Battle for Investment Survival”, by Gerald M. Loeb (1935) is not well-written and well-organized but that’s not to say it isn’t worth reading; it is! It is just that it’s sort of like visiting a farm where the wheat has been cut but not yet threshed or winnowed: you have to slog through a lot of stalks and chaff to find something you can digest. Once you do that, however, you’ll find it was well worth the work.

Loeb on Buy and Hold
Secular bull and bear markets typically last a minimum of 10 years and may last as long as 20 years. So if you are an analyst who cut your teeth on investing in the secular bull between 1982 and 2000, you may well believe that the current interregnum is an aberration and that buy and hold is still the way to go. It was – back then but, taking the long view, you can see it might really hurt you now.

That’s why “The Battle for Investment Survival” is worthy of your time today. Mr. Loeb wrote it at a time very similar to our own. Forget the “gurus” telling you that buy and hold will come back. Of course it will come back – in the next secular bull market but if you listen to them now, I believe you could lose a fortune. Why not listen to someone facing the same up and down ratcheting markets that we have faced since 2000 and are likely to face for at least another year or two? If you do that, I believe the “wheat” that you will find – not without a little effort – in this tome will be quite wholesome for your portfolio.

Loeb on Making Money and Safe Havens
Writing with the lessons of the early 1930s uppermost in his mind, Mr. Loeb disabuses the reader right away of the notion that:
a) there is easy money to be made. This is work. More fun than digging ditches or picking cotton or laying brick, maybe, but work, nonetheless
b) there are safe havens or safe investments when markets decline pointing out that, even in the best of times, bonds lose value because our government needs a steady depreciation of the dollar in order to pay back creditors in ever-less-valuable currency. What a dollar bought in 1965 now takes nearly 7 dollars to buy.

Loeb on Diversification
Loeb tells us diversification is not all it’s cracked up to be advocating instead fewer stocks to keep track of, but gaining depth or understanding on the ones you do hold. His point, verified by virtually every investor during last year’s plunge to 6000 on the Dow, is that when people panic they sell everything, so a diversified portfolio will fall just as much as an undiversified one. Moreover, a diversified portfolio will reduce the attention you can pay to individual stocks and he believes, no matter how solid the company, if its stock goes down, sell it. Better to take more very small losses than one or two devastating ones. Again, the recent experience of The Crash is clearly in evidence in his strategy.

Loeb on Liquidity
Beyond the investing principles I mentioned above, some other takeaways from the first 153 pages include:
Rule #1 – Buy only something that is quoted daily and can be bought and sold in an auction market. Liquidity is key! If you’re going to slowly accumulate 10,000 shares of a $1 stock and expect to sell for $1 in a rapidly-declining market where that is the alleged bid, I have some oceanfront property in Nebraska to sell you. That “bid” may only be for 1000 shares, or 100. The market-maker will eat you alive as you try to sell an illiquid security – as you watch your sale go from 1000 at $1 to 3000 at 92 cents to 2000 at 89 cents, and so on. Stick with quality names, well-followed, current in their reporting, and in an auction marketplace.

Loeb on Speculation
Mr. Loeb does not fear the word speculation. He uses it quite differently than I would but, once you understand his definitions, his strategy makes sense. To him, speculation simply means to take advantage of a capital gain opportunity with a high probability of reward – whereas investing means to seek a slow steady return that is bound to bite you if one thing goes wrong with the company, since your capital gain will likely provide a smaller cushion for error than in those items you bought that moved more.

Loeb on What to Buy and When to Sell
Too many investors buy a stock they hear touted and fervently hope it goes up — but they have no target in mind in terms of duration to get “there”, nor any concept or where “there” is. Loeb implores you to understand “why it was opened, what one expected to make, how long it was expected to take…” Selling – and knowing why and when to sell – is more difficult, and perhaps therefore even more important, than buying.

Loeb on When to Buy
Forget relative momentum and greater fool claptrap and buy when:
a) Sentiment is bearish
b) Prices are low relative to historical norms
c) Current business conditions are poor (not good!)
d) The particular company you are reviewing is out of favor
e) Dividends are non-existent or at least lower than normal
f) The stock is undesirable to others, and sell when the majority believes the quality has reached investment grade.

More Investment Advice from Loeb
In addition to avoiding penny stocks, sucker mailings, Internet and e-mail touts, etc. build in-depth knowledge in a limited number of venues that you can stay on top of. Even further, he advises that it is better to stay in cash than to reach for yield. Even the best dividend-payers will often plunge right alongside the most rankly speculative stocks. Why? Because some people are loathe to admit their mistakes, so they sell the positions least down at that moment, but then create a waterfall of selling as everyone else does the same thing.

“The Battle for Investment Survival” is well worth reading – especially for today’s investors. If he was right about the times in which he was writing – and he seems to have been – and I am right that this time is similar in direction or, more accurately, lack of direction, then:
this may be one of the best books you could possibly read to protect what you have and be prepared for the next time buy and hold will make this game a whole lot easier.

* (Joseph Shaefer is author of the investment primer ‘Bringing Home the Gold’ and editor of Investor’s Edge®.)

Editor’s Note:
– The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.
Permission to reprint in whole or in part is gladly granted, provided full credit is given.
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