To put the problem simply, investors today are playing in the toughest game there is - "the money game" - in a fiercely competitive market, dominated by highly-skilled professionals. The stakes for which they are playing are their personal assets; their own and their family's hopes and aspirations for the future.
Investing in the stock and bond market has always been a difficult and complex business. And it's even more so in today's rapidly changing business environment. We live in an age of explosive development of new ideas, industries, products, and problems. The thrust of the whole economy has changed over the past decade and will continue to change even more by tomorrow, by next month, let alone next year.
The stock market today, like the American economy which it mirrors, is vastly different from the market of even a few years ago. The indications are that the changes will be even more dramatic in the future. Today the market is heavily influenced by the large institutional investors. These professionals who make up today's market are a new breed. Performance has become a key word on Wall Street. Performance however is not merely a matter of interest to the professional investor. Corporations are interested in the rate of return on their retirement funds, universities are in a state of need in their search for additional sources of revenues, individuals expect their accounts with the local broker to match the performance of the go-go funds and more performance measurement services are being offered by brokerage houses, actuaries, and others.
It is vital for the individual investor to recognize the climate of change and to consider carefully how he can put himself in a position to compete for the information resources that will help him achieve his investment objective without undue risk. The investor must make these changes work for him - work to build his capital. If he does not, it is a virtual certainty that these changes will work against him.
The record of the past is no longer an indication of future profit. The profits of the future will go to those companies and individuals who correctly anticipate the needs of tomorrow and react effectively to change.
The plain fact of today's market is that the odds are not really in favor of the individual investor. Successful investing requires the creative use of far more sophisticated information, techniques and tools of evaluation than are generally available to the individual. It has become a full-time job, demanding a high degree of intellectual discipline to evaluate and interpret the multitude of complex influences that shape the market.
There is a greatly increased aggressiveness on the part of professional investors and the corporations themselves, who are taking a fresh look at the importance of market performance to corporate goals. New forces are at work to complicate the market's procedures, including arbitrage, and skilled market professionals who create swiftly changing cross-currents that affect stock prices hour by hour of every trading day.
It means that now as never before the key to successful investing is information and the intellectual capacity to deal with it - information creatively applied to the intuitive identification of future trends.
Unfortunately, the individual investor cannot hope to do nearly as well in the search for useful information as the professional who devotes full time to the search.
Never before has so much good research been done by Wall Street. Research specialists are more highly trained and have better tools, including computers and other modem operations techniques. Yet the individual investor does not always get this information in time for him to use it to his advantage.
Along with the functional changes in the market and the changing thrust of the economy has come a fundamental change in the basic concept of investment. To a large extent this change is a result of the economic climate and basic fiscal policy - itself a reflection of an economy dominated by the growth of new technology.
The professional investment manager must recognize these changing standards of investment performance, but he must also have the intellectual discipline to avoid being merely the follower of a fad.
Investment programs today, whether for public funds, private funds or for individuals of means, while varying in the degree of risk they are willing to accept, all have one thing in common: Total investment return - both capital and income.
There are a number of alternatives, each of which may be appropriate to a particular individual. However, every alternative involves one main goal:
To bring to bear the greatest available resources of information and analytical talent in an effort to capitalize on the investment opportunities for an individual portfolio at an acceptable level of risk.
One way in which many concerned investors have been able to secure professional, personal, investment advise is through an investment manager.
Successful investing today requires full-time research. When you employ a pension management company to work impartially on your behalf, you are in essence retaining a combination of analytical man time and computer time. The objective of these companies is to provide growth of capital while protecting against recurring periods of deflation.
The total experience of research professionals utilizing modern computer technology with its advantages in efficient, accurate data retrieval and analysis, is at work for you. The total capability factor represented by the service is an incalculable multiple of that of any single person.
How do professional investment managers select investments? Selections are based on research from three major economic areas. First is the fundamental and computer analysis of the nation's economic forces together with political and social trends. This includes computer forecast models of the stock market. While research can rarely predict business conditions with complete accuracy, it often can identify the major factors for expansion or contraction and gauge their influence on securities. Guidelines from these analyses formulate investment policy which furnishes the background for studies of industries and individual companies.
Second, and perhaps most important, the economic functions of the nation's businesses may be segregated into industry categories. This analysis is under constant review to help identify those industries and their stock and bond candidates which show investment promise.
Third, industry analysis by both computer and fundamental analysis attempts to review and select those companies which offer investment promise. Selected companies may then be matched against industry considerations in an attempt to affect a combined "Best Industry / Best Company" combination toward an investment decision. These studies require in-depth considerations of such factors as sales trends, earnings changes, price-earnings ratios, dividends, working capital, and plant facilities.
To relate company characteristics and highlight problem areas, data processing equipment is used extensively. This not only permits much faster computation, but has opened the way for many sophisticated statistical comparisons not feasible before.
Now take a quiet moment to reflect on your present investment situation.
Successful investors have several common characteristics which help to achieve success for you:
First is patience
While the history of our country has been one of continuous progress, there have been numerous instances of panic and despair. Eventually however, the problems of the times pass, and the growth potential of our economy continues to be realized.
Second is consistency
Successful investing is based on the foundation of programs and strategies which have stood the test of time. Decisions developed within a framework of consistently successful research programs offer the best guard toward the preservation of capital and growth.
Third is trust.
Bernard Baruch said it well: 'My advice to investors (who can not give full time to a study of investments) is to seek out some trusted investment manager. The emergence of this new profession of disinterested investment analysts, who have no allegiances and whose only job is to judge a security on its merits, is one of the most constructive and healthy developments of the last half century.'
Every serious investor should investigate and consider how the talent and the expertise of today's money managers might be employed to help preserve his capital and provide for prudent growth.