Introduction - A famous Wall Street story concerns a young man who was in the early stages of learning to be a professional speculator. He had a problem, so he went for advice to an elderly sage noted for his shrewd investment judgment. The fact was, the young man said, that he had taken on quite an extensive line of stocks, but the market looked high maybe too high he thought possibly his position carried with it too many risks, and wondered if he shouldn't perhaps sell. He was so worried about this, he said, that he couldn't sleep nights.

1. What Is A Formula? - The difficulties of building a fortune in the stock market are a painfully familiar subject to the large majority of those who have tried it. The gap between the apparent ease of beating the market and actual results of investors both professional and amateur is the principal justification for investment formulas and, hence, for this book.

2. Investment "Magic - In a story in early 1959 on a decision by the State of New Mexico to invest 25 percent of its $159 million Permanent Fund in common stocks (as against a previous practice of holding the entire fund in high grade bonds), it was reported that the $59 million bundle would be sunk into equities under a "slow, four-and-a-half year program," calling for stock purchases of about $1.1 million a month.1

3. Constant-Dollar Plan - From this point on, all the formulas treated in this book deal with an established fund, rather than with a constant flow of new money to invest, as in the case of dollar averaging. However, just as dollar averaging can be adapted to the requirements of a fixed sum, so can most of these other plans be used in managing a fund, which is constantly being added to. These techniques are all broadly classified as "ratio" formulas.

4. Constant-Ratio Formula - Somewhat similar to the constant-dollar plan is the constant-ratio formula. It is one of the oldest formulas in existence, having been used as long as 20 years ago. More important, it still stands up today, and is widely used, despite the drastic changes which have taken place in the

5. Variable-Ratio Formulas - The progression from constant-ratio formulas to variable ratios is completely logical. Once an investor understands the principles of constant-ratio planning, he might well wonder about the feasibility of adding some flexibility to a formula by increasing the ratio of common stocks when the market is low, and cutting back when the market is high, thus maximizing purchases of stock at low prices and minimizing risks at high

6. Use a formula? - It has been emphasized that the main vogue for formulas began in the late thirties, and was primarily a reaction to the market declines of 1929-32 and 1937-38. Naturally, the market analysts who first worked with formulas were more interested in building protection against declines than profiting from advances, and they understandably assumed that the severity of future drops in market prices would match these two earlier periods.

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