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The Investor and Inflation
Inflation, and the fight against it, has been very much in the
public’s mind in recent years. The shrinkage in the purchasing
power of the dollar in the past, and particularly the fear (or hope
by speculators) of a serious further decline in the future, has
greatly influenced the thinking of Wall Street. It is clear that those
with a fixed dollar income will suffer when the cost of living
advances, and the same applies to a fixed amount of dollar principal. Holders of stocks, on the other hand, have the possibility that a
loss of the dollar’s purchasing power may be offset by advances in
their dividends and the prices of their shares.
On the basis of these undeniable facts many financial authorities
have concluded that (1) bonds are an inherently undesirable form
of investment, and (2) consequently, common stocks are by their
very nature more desirable investments than bonds. We have
heard of charitable institutions being advised that their portfolios
should consist 100% of stocks and zero percent of bonds.* This is
quite a reversal from the earlier days when trust investments were restricted by law to high-grade bonds (and a few choice preferred
stocks).
Our readers must have enough intelligence to recognize that
even high-quality stocks cannot be a better purchase than bonds
under all conditions — i.e., regardless of how high the stock market
may be and how low the current dividend return compared with
the rates…