Page:Hints About Investments (1926).pdf/190

 that is unfortunately most difficult to eliminate from the choice of common stocks, but with the sober-minded purpose of providing (1) constancy of income, and (2) safety of principal."

In making these tests he had to be careful to avoid what the Stock Exchange calls "jobbing backwards"—that is applying what we know to-day to problems of yesterday or yesteryear. If he had attempted to let his imaginary investor in the past choose stocks that seemed to be the best to buy, he would almost certainly have been influenced by what is known now about their subsequent history. So the only principle of sound investment that he could apply to the choice of stocks was that of diversification. Each test assumed the investment of approximately $10,000 (£2,000) in ten different common stocks of large companies and of an equal amount in "high grade bonds." The stocks chosen were selected by some quite mechanical method—those in which there had been the largest number of transactions during the week in which the investment was supposed to have been made, or those which showed the highest yield on the basis of the previous year's dividend, with the most consistent dividend record.

It was also thought necessary to assume that the supposed investor had no further funds