“something foolish, something creative and something generous.”

The first is that common stocks with good records and apparently good prospects sell at correspondingly high prices. The investor may be right in his judgment of their prospects and still not fare particularly well, merely because he has paid in full (and perhaps overpaid) for the expected prosperity. The second is that his judgment as to the futur

From the company’s current assets, subtract its total liabilities, including any preferred stock and long-term debt.

Fund investing is no different. If you’re not prepared to stick with a fund through at least three lean years, you shouldn’t buy it in the first place.

Instead, calculate a stock’s price/earnings ratio yourself, using

(For the defensive investor we suggested an upper limit of purchase price at 25 times average earnings of the past seven years. The two criteria

See whether cash from operations has grown steadily throughout the past 10 years.

To get a better feel for how much risk you can take, think about the fundamental circumstances of your life, when they will kick in, when they might change, and how they are likely to affect your need for cash:

the intelligent investor should be interested in the possibilities of profiting from these pendulum swings. There are two possible ways by which he may try to do this: the way of timing and the way of pricing.