Security Analysis:Chapter 5

In this chapter we learn about different types of investors. There are institutions and individuals.

Instituions that invest fall under three main groups, the first having the most amount of government control, the second having partial government control, and the third having no government control.

Group 1

- life-insurance companies

- mutual savings banks

- "restricted" trust funds

- commercial banks (including trust companies)


Group 2


- fire and casualty insurance companies



Group 3


- unrestricted trust funds

- most philanthropic and educational institutions

- regulated investment companies (investment funds, mutual funds, investment trusts)


For individuals, there are two types of investors: defensive and enterprising.



The defensive investor is one who wants to invest passively - this is not us. He should place part of his funds in treasury bonds or similar, safe investments, and the other part into a diversified list of common stocks of big companies bought at a reasonable price. For the average person, we think this is the way to go.

The enterprising investor wants to invest actively, to put a lot of effort in to his investing - this is us. The enterprising investor follow no strict guidelines - he may employ part of his funds into something like the two-part plan of the defensive investor while employing the rest in more aggressive operations, or he may do something else.

We learn about tax considerations. For example, when choosing between a taxable and tax-free bond it is best to calculate to see which will give the higher return in the long haul.

We learn about formula timing plans, which is basically the idea of selling some shares when the market goes up and selling some when the market goes down. This is a good technique for the average person because it allows him or her to sell when the prices go up and buy when the prices go down.

Lastly, we are also introduced to dollar-cost averaging, which is the practice of regularly putting a certain amount of money into a stock or group of stocks, which is a good technique with proven results.