Common Stocks and Uncommon Profits and Other Writings

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4
What to Buy
Applying This to Your Own Needs
T
he average investor is not a specialist in the field of investment. If a 
man, he usually gives but a tiny fraction of the time or mental effort 
to handling his investments that he devotes to his own work. If a 
woman, the time and effort given to investments is equally small com-
pared to that devoted to her normal duties. The result is that the typical 
investor has usually gathered a good deal of the half-truths, misconcep-
tions, and just plain bunk that the general public has gradually accumu-
lated about successful investing. 
One of the most widespread and least accurate of such ideas is the 
popular conception of what traits are needed to be an investment wizard. 
If a public opinion poll were taken on this subject, I suspect John Q. 
Public’s composite picture of such an expert would be an introverted, 
bookish individual with an accounting-type mind. This scholastic-like 
investment expert would sit all day in undisturbed isolation poring over 
vast quantities of balance sheets, corporate earning statements, and trade 
statistics. From these, his superior intellect and deep understanding of 
figures would glean information not available to the ordinary mortal. 
This type of cloistered study would yield invaluable knowledge about 
the location of magnificent investments. 

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Like so many other widespread misconceptions, this mental picture 
has just enough accuracy to make it highly dangerous for anyone want-
ing to get the greatest long-range benefit from common stocks. 
As already pointed out in the discussion of the fifteen points to be 
considered if a major investment winner is to be selected by any means 
other than pure luck, a few of these matters are largely determined by 
cloistered mathematical calculation. Furthermore, as mentioned near
the beginning of this book, there is more than one method by which
an investor, if sufficiently skilled, can over the years make some 
money—occasionally even really worthwhile money—through invest-
ment. The purpose of this book is not to point out every way such
money can be made. Rather it is to point out the best way. By the best 
way is meant the greatest total profit for the least risk. The type of 
accounting-statistical activity which the general public seems to visual- 
ize as the heart of successful investing will, if enough effort be given it, 
turn up some apparent bargains. Some of these may be real bargains. In 
the case of others there may be such acute business troubles lying ahead, 
yet not discernible from a purely statistical study, that instead of being 
bargains they are actually selling at prices which in a few years will have 
proven to be very high. 
Meanwhile, in the case of even the genuine bargain, the degree by 
which it is undervalued is usually somewhat limited. The time it takes
to get adjusted to its true value is frequently considerable. So far as I
have been able to observe, this means that over a time sufficient to give 
a fair comparison—say five years—the most skilled statistical bargain 
hunter ends up with a profit which is but a small part of the profit 
attained by those using reasonable intelligence in appraising the business 
characteristics of superbly managed growth companies. This, of course,
is after charging the growth-stock investor with losses on ventures
which did not turn out as expected, and charging the bargain hunter for 
a proportionate amount of bargains that just didn’t turn out. 
The reason why the growth stocks do so much better is that they 
seem to show gains in value in the hundreds of per cent each decade.
In contrast, it is an unusual bargain that is as much as 50 per cent 
undervalued. The cumulative effect of this simple arithmetic should be 
obvious. 
At this point, the potential investor may have to start revising his 
ideas about the amount of time needed to locate the right investments 
for his purpose, to say nothing of the characteristics he must have if he

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