"Take A Profit, Cut A Loss."

10. An adage has strayed beyond the bounds of the Stock Exchange, and is thus expressed: "Take a profit, cut a loss:" when the price has advanced beyond that at which a stock was purchased, sell, or the chance may not readily recur while if it should decline below the purchase price, also sell, lest the descent should become deeper still. This may be a maxim for the speculator whose business is of a "sporting" nature, but if the investor constantly or frequently adopt it, all my labour in impressing upon him sobriety of judgment and the selection of investments which he can quietly and permanently retain, has been expended in vain. I am in no way an advocate of holding when exceptional advantages of sale occur, but the rule of seeking securities only which he can, and should, retain, is nevertheless, as a rule, the prudent practice of a cautious man. Frequent selling and rebuying are fraught with needless worry (which the profit does not compensate) and tend to generate the speculative habit which finds its issue ultimately in loss.

Beware Of "Tips."

Of all the abject aberrations of conduct - especially in financial affairs - the determination of a choice on the suggestion of what are vulgarly called "tips" is almost the most pitiable. Transferred from the domain of horse-racing, they usually terminate in similar catastrophes. But the influence of this tendency, when persisted, upon character and habit is infinitely more pernicious than the pecuniary loss, since the latter event may, in some instances, leave a permanent impress in the form of a decisive caution. This course conduces to disastrous confirmation of the immoral practice of gambling, too seriously ingrained already in the present generation; it abrogates all sobriety of thought, all wisdom of action, all patient and educative custom of deliberation, all the mental alertness which inquires; the character degenerates from steadfastness and forfeits its purity; the habit of recklessness becomes dominant. Vulgar and unreasoning eagerness for cheaply acquired material gains cancels the cultivation of any higher qualities of mind and spirit; and the man who might have emerged, by the personal discipline of studied events and intelligent activity, into a finer manhood lapses to the ignoble condition of an unthinking parasite.

"Averaging" Investments

A concluding remark may be submitted upon the frequent suggestion of what is termed "levelling" or "averaging" investments. If, for example, 100 shares in a company have been purchased at the price of £1 10s. per share (or £150 in all), and a decline of one-third occurs, the value of the investment then stands at £100, or £1 per share. The investor is then often recommended to buy an additional 100 shares at the reduced price; if he adopt that course, the average cost of the aggregate holding would then be represented by (150+100) / 200 or £1 5s. per share instead of £1. Trained all my life in assurance business where the fundamental conception is that of averages, I am not likely to disparage its application: indeed, in the suggestions respecting the distribution of the risks of securities I have emphatically enforced it; but my advice hero to the ordinary investor is to refrain from embodying the notion in practice. He will observe that if the company should further fail he has doubled his loss, and, generally speaking, a speculation upon its change to success will not be worth the risk which this increase of holding in a single security (especially in one which, as the illustration assumes, is liable to great vicissitudes) involves.