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Ben Graham's Lesson From The Computing-Tabulating-Recording Co.

Apr. 12, 2018 9:38 AM ET4 Comments
Novel Investor profile picture
Novel Investor

Way before Amazon (AMZN), Apple (AAPL), and Google (GOOG) (GOOGL) there was the Computing-Tabulating-Recording Co. (CTR). CTR had the hippest new tech in town.

The merging of four companies combined together into one in 1911, put time clocks, punch card equipment, and weighing scales (and a few other bits of new tech) all under one roof.

A few years later, a budding young investor on Wall Street felt CTR was a worthy recommendation:

In 1915, while just a beginner on Wall Street, I suggested that the firm recommend a low-price stock, the Computing-Tabulating-Recording Co. But my employer, a conservative fellow, pointed out that the company's bonds weren't covered by its assets. He said, 'How can you touch such a speculative stock?' And I returned to my desk a very chastised young man. Years later the public company changed its name to IBM."

CTR, now IBM (IBM), was the "Amazon" of its time. Graham recommended what became IBM when it was a measly $4 million market cap stock.

This is about the time everyone starts asking, "What if?" What if Graham bought it then? What if you bought Apple at its IPO? Or Amazon?

These questions get played out time and again whenever a popular company hits an all-time high. The headlines like "If You Put $1,000 in ________ at the IPO You'd be a Zillionaire!" make it seem so easy.

That's because it ignores the plot of the story. It tells us the starting price and the ending price but ignores the crazy adventure in between.

Graham explains just how difficult that adventure is:

He was wrong about the stock. But he was right in terms of an overall investment policy. Look at what could happen. A man could buy a stock like that at, say, $40 a share, and it goes to $100. Then people would say, 'Don't

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Comments (4)

After a stock has had a big run-up in price, each investor needs to make at least one decision: Does it make sense to take the initial investment amount (or some portion) off the table? Many will let the whole amount ride (strict buy & hold). Some may cash out the whole position long before the stock finishes its run-up (or at pauses in the run-up).

IBM has had a number of near-death experiences going back to the 1930s when it was saved by a large contract with the Social Security Administration. While no longer as dominant as it once was, it has done equally well or better than most of its older computer company rivals (Burroughs, UNIVAC, NCR, Control Data Corporation, Honeywell, General Electric and RCA). It has also done better than XRX, DEC, Wang Labs and others that at one time were expected to put it out of business. However, it has experienced major down-turns as it transitioned between different phases of the computer industry, illustrating the wisdom of taking partial profits periodically.
Some Lazy Bum profile picture
A large cap company has limited room to run (higher); GE proves that a large cap can fall a long way. When a private company goes public, there is risk but there is also opportunity.

Some private companies will never go public (http://bit.ly/2Hxaxhv, https://trib.in/2EKtaeP) and some may or may not go public someday (https://on.mktw.net/2H...). I am watching a few private companies and will invest in them if they ever go public; everyone can probably say the same thing.
I consider myself extremely lucky to be compelled by forces beyond my control to follow Buyandhold's philosophy. My better half has absolutely no interest in saving or investing. None. We would spend every penny and be at fate's mercy if it were up to her.

So for years now, I've "snuck" and saved $20 here, $10 there, and invested it through direct stock purchase plans at Computershare. I always give as my address "c/o (my mother's address.") I can never sell. I'm carrying some decent unrealized cap gains (some very decent, for the relatively short time I've been doing this.)

But I must keep an eye out for potential traps. Selling is one such potential trap. I'm on disability. As long as my income from dividends/capital gains added to my disability doesn't exceed a certain amount, I don't have to file a return. That's good. My secret is safe. But if I sell at a significant capital gain, the IRS might send me a letter asking me to explain why I didn't file taxes.

That wouldn't present any problem for me legally. I'd write a letter back, explain that I was disabled and had no earned income, and that my dividends and cap gains weren't high enough to require me to file. No problem. No problem, that is, other than my receiving that letter from the IRS would lower the boom on me at home and cause me a whole lotta grief.

My sneaky habit would be revealed and viewed suspiciously. I'd be in big trouble. No, I'm not saving to leave her. I'm just saving because I got tired of always being scared a long time ago. Someday, something terrible WILL happen and we'll need a small fortune for something. She'll learn about my secret then. Hopefully, her relief will outweigh her anger then.

In the meantime, I sneak and put an extra $10, $20, or $50 in my savings account whenever I can. When I put in a "buy" order at Computershare, I have them take it directly out of my savings account. Also, all dividends are direct deposited in my savings account. My savings account receives 60 deposits a year on top of my monthly VA checks.

Buy and hold WORKS. Being forced to adhere to buy and hold is and has been GOOD.
Buyandhold 2012 profile picture
I wish I had bought the Computing Tabulating Recording Company in 1911 at the advice of Ben Graham. But I was born in 1955.

However, God gives you second and even third chances.

I was advised by someone on "Wall Street Week" with Louis Rukeyser to buy Medtronic in 1980. The stock is now worth 1,000 times what it was worth in 1980.

Did I listen? No. I put my uncle in Medtronic instead. But he sold it a year later. No cure for stupidity.

But there is good news. Maybe 1 in 100 stocks will make you extremely rich over the long term. And I own at least three of them. Abbott Labs, Philip Morris and Exxon Mobil. All of them for 48 years.

Just in case you have one of those 1 in 100 stocks in your portfolio, you are playing with fire if you sell any of your stocks. You never want to sell any of those 1 in 100 stocks. So don't ever sell anything. That will lower your risk of selling one of those 1 in 100 stocks to zero.
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