Our Reasoning, Price Level

But at the outset of 1964 the natural optimism of brokerage firms was again manifest; nearly all the forecasts were on the bullish side, and they so continued through the 1964 advance.

We then approached the task of appraising the November levels of the stock market (892 for the DJIA). After discussing it learnedly from numerous angles we reached three main conclusions. The first was that “old standards (of valuation) appear inapplicable; new standards have not yet been tested by time.” The second was that the investor “must base his policy on the existence of major uncertainties. The possibilities compass the extremes, on the one hand, of a protracted and further advance in the market’s level-say by 50%, or to 1350 for the DJIA; or, on the other hand, of a largely unheralded collapse of the same magnitude, bringing the average in the neighborhood of, say, 450″ (p. 63). The third was expressed in much more definite terms. We said: “Speaking bluntly, if the 1964 price level is not too high how could we say that any price level is too high?” And the chapter closed as follows: 74 The Intelligent InvestorWHAT COURSE TO FOLLOW Investors should not conclude that the 1964 market level is dangerous merely because they read it in this article. They must weigh our reasoning against the contrary reasoning they will hear from most competent and experienced people on Wall Street. In the end each one must make his own decision and accept responsibility therefor. We suggest, however, that if the investor is in doubt as to which course to pursue he should choose the path of caution. The principles of investment, as set forth herein, would call for the following policy under 1964 conditions, in order of urgency: 1. No borrowing to buy or hold securities.