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Common Stocks as Long-Term Investments Explained

Nov 25, 2007
Bonds and preferred stocks are essentially defensive investments. They aim to protect the invested funds, but they are not designed to advance or to expand in value. For really flexible investment and substantial opportunity for capital gain, the security for you to look at is the common stock. It had quite a time becoming "accepted," but now it has not only arrived, it is acclaimed as not only almost the ideal investment, but one uniquely equipped to make you rich if you happen upon the right selection.

In spring 1960, there were thirteen million stockholders in America. Their number had doubled in a single decade. Yet there was a time a half-century earlier when stocks were regarded as highly speculative; and investment in them was considered suitable only for businessmen and bold sportsmen or gamblers.

Then the fashion changed and in the Roaring Twenties almost everybody got interested in the stock market: the grocer, the elevator boy, the nurse, the college professor, as well as the rich and resourceful. But most of these newcomers to the stock market were buying stocks for the wrong reason. They were buying purely for speculation.

They paid little note to such basic things as earning power, dividend rates, possible over-expansion of an industry, or the overcapitalization of a company. All they were out for was a fast buck. And often, lacking enough money to work with, they borrowed bought on margin. They put up $500 of their own money and borrowed $4,500 from a broker to purchase stocks costing $5,000.

With a 10% rise, their own money doubled; but with a 10% loss, they were either sold out, losing everything, or were asked to put up more money, which in many cases they didn't have. Either way, they were in trouble. Their cupidity and stupidity had done them in.

All of this gave the stock market a bad name; and it took several years for lessons learned at great pain and cost to sink in. Over the years, however, the true worth of common stocks has become understood, and thousands of individuals have prospered by buying outright (not on margin) the stocks of such fine companies as IBM, American Tel. and Tel., Consolidated Edison, General Foods, du Pont, General Motors, etc.

Not only economists and financiers but people in all walks of life have found good common stocks to be rewarding investments, providing increases in dividends to compensate for the declining purchasing power of the dollar, and rising net worth as stocks advanced in price in response to sustained growth in earnings.

Common Stocks Gain Acceptance

So common stocks are a good thing. The amazing growth in size, financial stability, earning power and dividend-paying capacity of hundreds of fine corporations have made their common stocks desirable and dependable long-term-investments. Thus today not only individuals but trustees, investment trusts, insurance companies, savings banks, and endowed institutions are all substantial holders of common stocks.

Now you know their value, it is perhaps time for you to invest in some common stock. Good luck!
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