Part One
STOCKS AND THEIR VALUE
1
FIRM FOUNDATIONS
AND CASTLES IN THE AIR
What is a cynic? A man who knows the price of everything, and the value of nothing.
— Oscar Wilde, Lady Windermere’s Fan
IN THIS BOOK I will take you on a random walk down Wall Street,
providing a guided tour of the complex world of finance and practical
advice on investment opportunities and strategies. Many people say that
the individual investor has scarcely a chance today against Wall Street’s
professionals. They point to professional investment strategies using
complex derivative instruments and high-frequency trading. They read
news reports of accounting fraud, mammoth takeovers, and the activities
of well-financed hedge funds. This complexity suggests that there is no
longer any room for the individual investor in today’s markets. Nothing
could be further from the truth. You can do as well as the experts—
perhaps even better. It was the steady investors who kept their heads
when the stock market tanked in March 2009, and then saw the value of
their holdings eventually recover and continue to produce attractive
returns. And many of the pros lost their shirts in 2008 buying derivative
securities they failed to understand, as well as during the early 2000s
when they overloaded their portfolios with overpriced tech stocks.
This book is a succinct guide for the individual investor. It covers
everything from insurance to income taxes. It tells you how to buy life
insurance and how to avoid getting ripped off by banks and brokers. It
will even tell you what to do about gold and diamonds. But primarily it
is a book about common stocks—an investment medium that not only
provided generous long-run returns in the past but also appears to
represent good possibilities for the years ahead. The life-cycle
investment guide described in Part Four gives individuals of all age
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