Your thoughts on dividends? There is no correlation between dividends and a stock's performance, hi fact, the more a company pays in
dividends, the weaker their posture because they may have to pay high interest rates to replace funds paid out in
dividends. It is naive to hold stocks that are going down because they pay dividends. If you are getting a 4 percent
dividend and the stock goes down 25 percent, your net yield is a 21 percent loss.
How about overbought/oversold indicators? I rarely pay any attention to overbought/oversold indicators. I once hired a well-known professional who
specialized in such technical indicators. At the very point during the 1969 market break when I was trying to convince
portfolio managers to liquidate stocks and move to cash, he was telling them it was too late to sell because his
indicators said the market was very oversold. Once his indicators were oversold, the market break really accelerated.
The final item on my list of your most prominent conventional wisdom targets is diversification. Diversification is a hedge for ignorance. I think you are much better off owning a few stocks and knowing a
great deal about them. By being very selective, you increase your chances of picking superior performers. You can
also watch those stocks much more carefully, which is important in controlling risk.
How many issues would you advise a typical investor to hold at any one time? For an investor with $5,000, one or two; $10,000, three or four; $25,000, four or five; $50,000, five or six;
and $100,000 or more, six or seven.
Aside from the subjects we have just discussed, is there anything else you consider a major public misconception? Most investors think that charts are hocus-pocus. Only about 5 to 10 percent of investors understand charts.
Even a lot of professionals are totally ignorant about charts. Just as a doctor would be foolish not to use X-rays and
EKGs, investors would be foolish not to use charts. Charts provide valuable information about what is going on that
cannot be obtained easily any other way. They allow you to follow a huge number of different stocks in an organized
manner.
