When the writer began to study investing, he was puzzled as to why so few professional financial people recommended the sort of investing that, to the writer, seemed to take ad­vantage of the best available investment advice for obtaining good, long-term results. But gradually he has come to realize that this is a natural condition, existing also, in varying degree, in other fields of human activity.

Many investors feel no need for obtaining investment advice on what to buy. Some people still "invest" in gold bricks, falling for ancient tricks. Others, preferring something modern, buy shares in a mining company whose printed prospectus, if they bother to read it, tells them that the company is practically a fake. However, we assume that readers of this book, although perhaps plenty careless, are not so gullible as those just mentioned.

Secretiveness about finances, as opposed to open investment advice, is customary. People do not talk freely about their experiences with investing. A speculator may brag about his successes, but he keeps mum on his failures, thus misleading his associates and himself. On the other hand, some men conceal the amount and source of their extra income; maybe they want to hide something from both their wives and the tax collector. With these customs of half-truths and secrecy on investments, people naturally don't learn from the experiences of their friends and neighbors, as they do on other subjects.

The simplicity of investing fools people who in other respects are well informed, leading them to ignore good investment advice. When a man has mastered a difficult job paying him a good income, he assumes that he needs no training on how to use his savings. In fact, the more financial success a man has gained in his main work, the greater the danger than his natural egotism will delude him into assuming that he also knows how to invest in other businesses without stopping to learn anything about them. Saving money usually requires a struggle, and necessarily involves the sacrifice of other things wanted. But most savers pay so little attention to learning how to invest that in effect they waste most of their effort to save.

As business is organized in the United States, anyone want­ing to sell something must find some means of bringing it to the attention of prospective buyers. The usual way is to have the article stocked in retail stores located where the public can visit them readily, or to have advertisements placed where the public will see or hear them. A buyer does not, ordinarily, search beyond the stores, ads, catalogs, or other sources that he is in the habit of using. He assumes that competition among sellers has brought within his convenient reach articles that are good enough and cheap enough so that it is not worth his while to look for others in inconvenient places.

This habit of a buyer's expecting a seller to attract his attention works fine, up to a point. But sometimes this custom interferes with progress. Once an article of mediocre quality gets established as standard, then an item of higher quality has trouble in gaining attention.

In the investment field, buyers follow the same easy habits as in their other purchases. For instance, more people hold life-insurance policies than any other form of investment largely because for scores of years the life-insurance companies have had so many agents scouring the woods for customers.

Sales Man Must Sell

When a man goes into the business of selling investments, or selling investment advice about them, he must sell what his pros­pective clients think is good, or else he won't have much of an income. If his customers are poorly informed, he cannot educate them suddenly and still make a living. Salesmen and buyers with similar ideas tend to gravitate together. A stock­broker finds his customers mostly among that minority of investors already accustomed to owning stock; he cannot rapidly make converts from among investors acquainted only with fixed-price items. Somewhat the same condition exists in any other business, and is even worse in such fields as politics, religion, and art.

A man can sell investments without knowing much about them. He can make out all right with a pleasing or imposing personality, plus a bit more knowledge or gift of gab than his customers have. A conscientious salesman tries to enlarge his own knowledge of what he is selling, and to raise the standards of his customers. If he can collect a group of cus­tomers who appreciate his efforts, maybe he will be successful.

But probably an easier way to build up sales is to play on customers' weaknesses. Life-insurance agents often aim at a man's emotion, his fear of death, his love of his family, and his desire to make them "secure." Apparently many life-insurance salesmen don't even bother to find out what other insurance companies offer, let alone knowing whether an entirely different type of investment might be better for the buyer.

Turning to a quite different situation, a stockbroker or ad­viser can take in more fees if a customer buys and sells fre­quently rather than if he holds on to investments for a long time. So it is not surprising if a broker yields to the temp­tation to work on a customer's desire to gamble or to get rich quick. It is not necessary for the salesman to offer a careful estimate of what will happen in the future on the stock he wants to sell. His main sales argument may be some stories of how greatly a man's capital would have multiplied if he had bought certain stocks at just the right time, years ago.

Advertisements and published articles on investing generally use arguments of the sort just described for salesmen.

Many people love to be associated with big names in whatever they do and investment advice is no different. To this type of customer a salesman of most any sort of investment may say: "Henry Jones, who as you know is president of the largest corporation in town, has invested $100,000 in this." The implication is that anything good enough for Mr. Big, must be O.K. for the little fellow. The question whether Mr. Big knows anything about invest­ing does not arise.

A salesman working in an organization earns his income only by selling what his outfit offers. If he wants to hold his job and be promoted, he must make big sales. So naturally he is tempted to overload his customers with the items offered by his organization. He cannot afford to offer impartial advice, and to shield his conscience he convinces himself that what he is selling is the best for his customers under all circum­stances. Once a man has established himself in one organ­ization, a change to another outfit may be quite difficult, and may cut his income severely. So regardless of his private opinions, he keeps on selling for the old company.

As the stock market is organized, a stockbroker or dealer can have considerably more leeway in what he can recom­mend profitably than can the representatives of most other types of investment. He can make a commission on a cus­tomer's purchase or sale of any one of some tens of thousands of stock and bond issues. But he is still subject to temp­tation to urge a customer to buy or sell whatever will give the broker or dealer the most commission.

When a financial organization has worked out a method that builds up a good volume of business, the management is apt to adopt that method as truth.. When first established, maybe the plan was the best available. But as time passes, other methods are launched and improved by other institutions, until eventually it becomes evident to an impartial observer that the old method is terribly out of date. But meanwhile, the organizations using the old method have developed an enormous volume of business and prestige. An officer of one of these companies may realize that his outfit is selling what is now an investment of dubious quality, but he is mired in a rut, afraid to make a major change, for fear it will hurt sales volume. In the writer's opinion - and take this investment advice for what it is worth - this description fits many financial institutions of various types, but especially the life-insurance industry.

It is not merely the little, ordinary investors who suffer from lack of good advice. Plenty of wealthy people, and trustees of funds running into many millions of dollars, are too egotistical or lazy to seek information, and fall victim to salesmen who are greedy or ignorant.

Finding Good Investment Advice

Now suppose an investor really wants information on the best available investments; how does he get it? From what has been said in this chapter, it follows that if he asks the handiest salesman of investments, or some business executive of his acquaintance, the advice he receives will probably be mediocre to poor.

Either a careful investor must locate one of the minority of salesmen or investors who have learned how to obtain first-class results, or else he must do the necessary studying himself. In the writer's opinion, gathering information about corporate stock is greatly simplified by examining the records of invest­ment companies. Their performance offers a standard for comparison, even though an investor does not buy their shares. Information about them is easily obtained, much of it being available free of charge.

What proof does this book give that its investment advice is any better than the average? A reader will have to judge for himself.