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Developing Your Own Investment Program

Apr 9, 2008
Once you have some background information, you should be quite well prepared to appraise the usefulness and function of various classes of security and, more specifically, to design a long-range investment program suitably tailored to your own individual needs.

Do some Research

The type of security account you should be working toward depends of course on your own particular objectives and goals.

Certain fundamental investment procedures should always be observed. First, any and every security decision made must be based on facts not on rumor, hearsay, or a "tip." Get from your broker, or from an investment service or analytical report, the complete information about the company and security in question capitalization, trend and consistency of earning power, quality of management, balance sheet position, research program, dividend record, price range, etc.

If possible, compare the security you have in mind with a similar one in the same industry. Satisfy yourself so far as possible that this particular security will accomplish the purpose for which you are purchasing it.


In launching your program, start off with quality securities. Buy the best in the category you have decided on. Then consider diversification. This is a rather overworked word and the principle can be overdone. Sensible diversification calls for spreading your investments over a sufficient number of individual issues so that if one stock does not work out well, it will not seriously impair the market value or the income return of the entire list.

Originally, diversification was entirely a defensive concept to insulate against loss by spreading the risk. More recently, however, diversification has been thought of in a more positive way, namely, the spreading of investment over a number of issues to assure broader representation among dynamic industries.

Either way you view the matter, diversification is a sound principle and you should follow it, but not make a fetish of it. If your list totals less than six figures, then 8 to 12 individual issues should provide a quite practical degree of diversification. A compact list of securities is easier to follow, and too many issues needlessly clutter up your bookkeeping and create "scatter-fication" rather than intelligent diversification.

Practically, diversification is used to divide investment holdings among the major groups utilities, railroads, financial companies, oil, chemicals, steels, Pharmaceuticals, merchandising, publishing, minerals, and mining, etc. Industrial trends at the time of purchase are important. For example, in the early 1900's, railroads were a dominant factor in our economy, and a stock list without railway securities in it would have been almost unthinkable.

There is no such insistence on railway issues today, and their attraction is more in high dividend return than in concepts of dynamic growth. Oils, in late 1956, displayed a significant flattening out in earning power; and in the period 1957 to 1960, oil shares were among the poorest market performers. So there are fashions in finance which should be observed. In 1915, trolley stocks and bonds were in great favor. Where are they today?

Sample Portfolio

Having set down the basic criteria for building your own investment portfolio, it might be well to outline a sample program. Please bear in mind, however, that this list is merely an illustration and in no sense to be regarded as recommendations or endorsements of individual securities.

Conservative Income Program Sample Portfolio of Common Stocks

Standard Oil of N. J.

American Telephone and Telegraph Commonwealth Edison

Niagara Mohawk Power

American Tobacco Company

First National City Bank

Norfolk and Western Railroad American Express Company

Procter and Gamble

This will give you some ideas about quality selection and diversification. For guidance in your consideration of securities primarily for dependable income, you should obtain a list published by the New York Stock Exchange of stocks which have paid dividends regularly for 25 to 50 years. A similar list of long dividend-paying-over-the-counter issues is published semi-annually by the Commercial and Financial Chronicle.

Now it remains for you to make up your own investment program. Good luck!
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