Challenges and Strategies for the Aggressive Investor

Key Insight

The aggressive investor aims to achieve better-than-average results but must first ensure results are not worse. This requires a clear understanding of which actions offer reasonable chances of success. Historically, common approaches, such as trading in the market (buying on advances, selling on declines, short selling), short-term selectivity (buying stocks based on expected increased earnings), and long-term selectivity (focusing on past growth or future high earning potential, often in technology sectors), have proven difficult to consistently profit from.

Investors face obstacles including human fallibility in forecasting and intense competition. Near-term company results are often common knowledge and already factored into market prices, making it challenging to gain an edge. Long-term predictions are even more prone to error, as experts frequently go astray. While theoretically possible to benefit from correct predictions against market consensus, it is highly improbable for individual investors to possess the acumen to consistently outperform professional analysts in estimating long-term future earnings. Therefore, achieving sustained better-than-average results necessitates policies that are both inherently sound and unpopular on Wall Street.

Opportunities arise from speculative stock movements going to extremes and individual issues being undervalued due to neglect or prejudice. Historically, 'special situations' like intersecurity arbitrages or mergers could generate 20% or more annual returns with minimal risk, but their profitability has diminished due to increased competition and deal failures. Bargain issues, selling below their share of net current assets, once provided highly remunerative returns but largely disappeared by the 1960s, though some resurfaced in 1970. The aggressive investor should seek undervalued marketable securities using logical and dependable standards, aiming for an additional 5% annual return before taxes on their stock portfolio. Crucially, they must avoid new offerings or 'hot' issues promoted for quick profits, instead focusing on shares of established companies with long records of profitability and strong financial health.