The Intelligent Investor: The Definitive Book On Value part 31. The purpose of this book is to supply, in a form suitable for laymen, guidance in the adoption and execution of an investment policy. Comparatively little will be said here about the technique of analyzing securities; attention will be paid chiefly to investment principles and investors’ attitudes. We shall, however, provide a number of condensed comparisons of specific securities - chiefly in pairs appearing side by side in the New York Stock Exchange list in order to bring home in concrete fashion the important elements involved in specific choices of common stocks | 286 The Intelligent Investor only on experience. Investment history shows that bonds and preferred stocks that have met stringent tests of safety based on the past have in the great majority of cases been able to face the vicissitudes of the future successfully. This has been strikingly demonstrated in the major field of railroad bonds a field that has been marked by a calamitous frequency of bankruptcies and serious losses. In nearly every case the roads that got into trouble had long been overbonded had shown an inadequate coverage of fixed charges in periods of average prosperity and would thus have been ruled out by investors who applied strict tests of safety. Conversely practically every road that has met such tests has escaped financial embarrassment. Our premise was strikingly vindicated by the financial history of the numerous railroads reorganized in the 1940s and in 1950. All of these with one exception started their careers with fixed charges reduced to a point where the current coverage of fixed-interest requirements was ample or at least respectable. The exception was the New Haven Railroad which in its reorganization year 1947 earned its new charges only about times. In consequence while all the other roads were able to come through rather difficult times with solvency unimpaired the New Haven relapsed into trusteeship for the third time in 1961. In Chapter 17 below we shall consider some aspects of the bankruptcy of the Penn Central Railroad which shook the financial community in 1970. An elementary fact in this case was that the coverage of fixed charges did not meet conservative standards as early as 1965 hence a prudent bond investor would have avoided or disposed of the bond issues of the system long before its financial collapse. Our observations on the adequacy of the past record to judge future safety apply and to an even greater degree to the public utilities which constitute a major area for bond investment. Receivership of a soundly .
