The Wise Investor
This is the time when you can purchase asset with a
strong future, a high yield, and a low price."
John looked across at Kate, wondering whether she was
understanding his words. She looked a little confused.
Finally, she spoke.
"How the hell do I work this all out, John?" she said. "I'm
not an expert."
"True," her grandfather replied. "However, you don't
need to be. All you need to look at is two things. First, has
the investment had a bad time in the last few years, but does
the future look better?
Reading the business section of any newspaper will soon
give you an answer to this. Second, and most important of
all, ask whether it has a good yield.
This one question will answer all the others for you. By
definition, an investment which is strong but unpopular will
have a high yield, that is a high income for its price.
An investment which is popular will always have a lower
yield. This brings me to a very important point. Although you
will need to have a reasonable idea of whether the prices
are high or low compared to the past, do not try and pick the
exact top or the exact bottom of the cycle.
Many people go wrong by waiting for the very top of the
cycle, and then missing out altogether when prices decline.
No-one can predict the future and it is impossible to be
sure when you are right at the top of the cycle. It is far safer
to sell after a strong rise in prices, even if there may be a
little more growth left in the cycle before the declines begin.
As they say in the stock market, 'leave a little for the next
man', and 'no-one ever went broke taking a profit'. It is
better to sell after a healthy rise, than to try and wring the
last little bit of profit from the investment.
Never sell an investment while the outlook continues to
be positive, but always be aware that there will come a time
when the outlook changes and it is time to sell.
The final point, is that even if you are wrong in your
timing, as long as you buy an asset with a good yield, then