A million, ten million, the moon: you name it, and I’ll find a book that tells you how to lay your hands on it. And if the book happens to deal with investments, it’s wrong.
Take Mr. Leon Allen’s book. A couple of years ago this courtly gentleman bought me a lunch in one of the Wall Street clubs, handed me the pamphlet which has served for many years as the prototype of this book, and explained in detail his system of investment, which boils down to this: let the rising stocks rise, and sell pretty quickly the stocks that have turned down. How to know when to sell? Make an arithmetical average of the closing prices for the last (censored) number of days, and when the recent prices go below this moving average by a certain (trade secret) per cent, sell. Likewise when you buy. All on the assumption that a recent trend, unless interrupted, will continue. Which amounts to a forecast, although Mr. Allen denies that he forecasts. The system also involves studying the past, in terms of stock prices, even though Mr. Allen makes a special point of pooh-poohing the statistical analysis of stocks (earnings, dividends, capital ratios, and the like) on the grounds that this is “past history.” So the intellectual basis of the system is suspect, because it is inconsistent—even though Mr. Allen is an extraordinarily successful manager of other people’s funds. He is honest enough to admit that much of his success is owing to “art” or “feel.” In which case, why not forget the system and write a book about financial intuition?
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