The Battle for Investment Survival

I've read many recently published books on how to profit from the financial markets. Too many of them leave me feeling like I wasted my time and money. I decided to go back to the "classics"--Schabacker, Edwards and Magee, Graham, Hamilton, Rhea, and of course, Gerald Loeb. The more I read these "classics" of investment literature, the more I see the market hasn't fundamentally changed at all. All of those books have taught me something important, but I will always have Loeb's "Battle for Investment Survival" close to the top of my list.Loeb demonstrates he is fundamentally honest. Unlike most books, that get you to think becomming a millionare through daytrading is easy, Loeb teaches that there is no such thing as "easy money" in the financial markets, nor are there "safe investments" (bonds) as the value of money is constantly depreciating.He also teaches that there are NO guarantees, and that most people WILL lose money regardless of what they do. I think this is true, but most people cannot face it--even those "efficient market" types who advocate the buy and holding of index funds. (I believe Loeb would be a big fan of Exchange Traded Funds, however)So, what is one to do in order to preserve purchasing power? His answer: intelligent speculation and the ever-liquid account.To speculate intelligently, Loeb advises focusing on actively traded stocks--not illiquid "penny stocks" for your SPECULATIVE activities. Let's be clear--Gerald Loeb is no "buy and hold" advocate. Loeb could be considered an advocate of the "relative strength" approach--before the concept of "relative strength" ever existed. The moment your stock is failing to deliver superior profits, and you have no fundamental reason to believe its uptrend will continue, he advises you sell and look for another. If you can't find anything interesting, or the market is going down--you stay in cash. For Loeb, you MUST avoid catastrophic losses like those sustained in the crash of '29. A stock that doesn't rise (or fall if you like to short) is a waste to be avoided.Loeb is not a fan of too much diversification. He thinks it is a crutch that guarantees mediocre performance.His most important teaching would focus on money management (what we would now call "asset allocation"). Loeb would consider it foolish to allocate a significant (more than 50%) of your capital to stocks. You always need a cushion for those inevitable losses in trading operations. I've taken Loeb's advice to heart. His advice is even more applicable to options trading. By keeping a small amount of money in a volatile asset, and ruthlessly cutting losses, you give yourself a chance to match the market or even outperform, but with significantly less risk (volatility), due to the large cash reserves. Loeb's advice isn't easy to follow. But making money isn't easy. And by following Loeb's advice, I'm quite pleased.

As one review put it-- this is timeless wisdom and dated info. The book is fascinating and it is like meeting a Great Guru in person.I had watched the market little deeply only for few months.But even with that experience,I can say "Oh ,how true,how true" for many many paragraphs in the book.I have underlined them everywhere.If you care about your money and investment and want to take charge of it, There is no other compassionate Guru you can find other than Mr Loeb.I think his theory works very well in bull markets too. But you have to work very hard,as he rightly cautions. It is worth all the effort. Thank you Mr Loeb for demystifying the Stock market, its perils and opportunities.If one has time, One should forget all the fancy investment theories floating around in popular journals and fashion, and practice Mr Loeb.I think it will work very well for small investors

This is a book that was out of demand for a long time, it seems, and is much needed nowdays. Most investment guides that became popular in the last 10-15 years were about the bull market, obsolete now. This outstanding work of Gerald M. Loeb sums up his experience of an active investor all the way from the bull market of 20ies, then the Big Crash, the gloomy 30ies, WW2, until 1965. He managed to survive all major market mishaps and he shares his thoughts with the reader. His preferred audience is perhaps the intelligent investor in tough times. What I learned from him (and it was the first time I ever read these things) - losses should be cut promptly, diversification is usually poor tactics, fundamentals can sometimes be ignored. This is just his opinion of course, read the arguments yourself. A must read on how to survive the recession, IMO.

Like many of the other reviewers, I read this book after seeing it in the bibliography of a Wm. O'Neil book. While the observation that "if you've read O'Neil's major works, you've already read Loeb" has some truth to it, I would argue that there is at least one point that Loeb expresses even more clearly than O'Neil, i.e. the fallacy of holding a declining stock because "it will come back." Suppose you were forced to sell the stock today, he asks. Now, suppose you were trying to figure out the VERY BEST investment to try to recoup your loss. Would it be to repurchase your loser? Almost certainly not. To me, that question crystallizes the argument for ruthlessly cutting losses better than I have ever heard it expressed. The same point is recast in a number of different ways, e.g. the excellent chapter on "Sound Accounting for Investors", in which he advocates always "marking to the market", rather than ignoring "paper" losses or focusing on current income. "Gaining Profits by Taking Losses" and "The Ever-Liquid Account" bring additional perspective to the same theme. In fact one of the nicest features of the book is the way it is broken up into almost 80 chapters. The main themes are repeated several times, but with different emphases. As a result, the more one browses and rereads selected sections, the more one appreciates the strength of the iconoclastic theory of investment that Loeb advocates.

This is a book to challenge every preconception you have about investment. The world today is full of buy and hold investors (isn't that how Buffett made his billions?). And it is not hard to be a committed buy and holder when the Dow is fast approaching 7000. Buy and hold has been very profitable and almost any fool could play. But it has not always been so. Sustained bear markets do exist. And in a bear market the mugs in mutual funds become more than passingly skittish. Buy and hold was once unfashionable and it will be again. This is a book (first published in 1934) from the period where buy and hold was as deeply unfashionable as it has been any time in history. Loeb is an extreme pesimist. If the Dow ever sees 4000 again he might become popular. Loeb does not think that fundamental analysis makes any sense. He illustrates with companies which have been overvalued for years at a time and with companies where persistent undervaluation has occured. Loeb does not believe in buying good stocks and holding them. Though buying good stocks before events likely to cause revaluation might be a good idea. Loeb does not believe in diversification. A diversified portfolio will get beaten around in a bear market just as surely as an undiversified one. Moreover, a diversified portfolio will reduce the attention you can pay to individual stocks. Loeb advocates putting all your eggs in one basket and taking extra care to watch the basket. Loeb thinks that if you do not know what to do you should be in cash or near equivalents (short dated high quality paper). If you are in stocks you are in for a hiding. Loeb believes in firm (and irrevocable) stop loss rules. If you buy a good stock and it goes down sell it. Buy and holders might just be inclined to buy some more and suffer more damage at the hands of capricious bears. That these views are deeply unfashionable comes as no surprise when the buy and holders have had such a good run. I come from Australia where the index peaked at 2310 in October 1987 and has only just broken 2400. It spent years in the 1200-1500 range. New Zealand has never broken the pre-crash levels. These are markets where the general populace is scared of stocks. Mutual fund madness is unknown here. I know no Australian who invests in mutuals. I do not think that Loeb is right. But he knows a few things that very few people do know in the US market. Maybe that makes them worth knowing. This is a book about the psychology of a sustained bear market. Dow investors will not recognise it. It is more familiar to us in the Antipodes. Read it so that you will recognise it. And when everyone you know is thinking like Loeb, and the baby boomers have become 'mutual shy', pull out Graham and the other buy and hold bibles and go shopping on Wall Street.