A question that a lot of investors ask is whether they should aim for capital appreciation or a nice dividend.
With Forex this question does not arise as capital gain is the main objective.
A fat dividend and a high yield which persuades investors that the stock has been undervalued may well create a small stampede that boosts the price and thereby reduces the yield to more conventional levels.
It is also conceivable, however, that one could wait a discouragingly long time for Bethlehem and Youngstown to merge (the Government has frowned on the idea) or for Northern Pacific to make more from oil than from railroading.
The big problem of the capital-appreciation man is that he is dealing in forecasts and predictions—and on a larger scale than his brother who simply wants to figure the chances that General Foods will continue its $2 dividend.
There are indicators which make the task something more than guesswork, but it is difficult nonetheless. Corporation directors are notoriously close-mouthed about any action affecting the fundamental structure of their company; it is most unlikely that the average investor can inform himself and act fast enough to gain an edge in this area of capital gains.
As for growth prospects, the field is wide open. But whether to pick an Ampex, a General Dynamics, or an Eastman Kodak is a puzzlement.
Every large and successful company today was once small, and investors who got aboard during the rise profited handsomely. But which of the hundreds of small electronics firms will be the General Electric of tomorrow—and which will go by the boards, as did so many promising automobile companies a generation ago? (Anybody got a closing price on Pierce Arrow?) And what, considering the amazing versatility of our ever-growing large corporations, is Mighty Atom Instruments, Inc., likely to do that Westinghouse can't do better? Even assuming you have picked a winner, have you picked it early enough?
The prices of many so-called growth stocks today already reflect the optimism of buyers, possibly beyond the ability of the companies to earn as anticipated.
Remember, too, that in the rising market we have enjoyed for so many years, the real gain lies not in picking a merely successful company—the woods have been full of them—• but one which outruns the market.
It has been done, and can be done again. A bold investor who has studied the market closely can pick up a temporarily depressed or unpopular stock at a good price and reap the benefits of a subsequent rise. Or he may, in fact, sniff out the company due for a banner year.
But for the new investor, even the try for capital appreciation is best done on a long-term basis. Satisfy yourself that your stock is not overpriced, then buy and give it a chance to develop.
Safety of Principal: Essentially, this means bonds. The investor who is willing to forego a lively profit in the form of dividends or capital appreciation can be interested only in conserving the funds he has invested. This, customarily, is done by purchasing bonds which are a debt of the issuing company, not a stake in its earnings.
Bonds held to maturity will return their face amount to the holder. And bond interest must be paid along the way whether this leaves anything for the stockholders or not. Interest is paid at a fixed rate for a stated period of years; the rate usually is between 2.5 and 4.5 per cent, depending on the difficulty or ease of obtaining money at the time of issuance. Once it nits the market, however, an attractive bond, like a good stock, is frequently bid up to the point where the return is considerably less than if it had been bought at par.
Municipal bonds, issued by towns and cities to finance schools, sewage systems, water lines, and the like; state bonds issued to finance a variety of requirements; and public authority obligations, usually involved in the construction and operation of toll highways or bridges, are a category primarily of interest to the wealthy investor seeking tax relief. "Municipals," as all three are loosely called, are tax-exempt. For the man in the 50 per cent bracket this means as much income from a bond yielding 3 per cent as from stocks earning 6.
Still and all, the new investor interested in bonds will by all odds do best by purchasing United States Savings Bonds, Categories E or F. They are the safest security anyone can buy. They are noncallable; they are not subject to the flue-tuations of other securities and other markets. (Corporate bonds are inclined to slump when stock prices are cheap and yields high, inclined to become expensive when stocks are high and yields begin to approach the levels customarily offered by bonds).
Another point: corporate bonds are usually issued in $1,000 denominations, which places a significant holding beyond the reach of any but the wealthy or institutional investor.
If you are a Forex investor remember that as you are trying for a capital gain, this can Be risky and good Forex software will help you reduce risks.