This one-note investment brief, published in somewhat different form in Canada in 1978, purports to offer a ""surefire""...


THE PROFIT-TAKER: The Proven Rapid Money-Maker in Good and Bad Markets

This one-note investment brief, published in somewhat different form in Canada in 1978, purports to offer a ""surefire"" strategy for wresting profits from securities markets. Tagged the ""Abrams Automatic Profit-Taker,"" the mechanistic method involves hedging short positions in common stocks with convertible bonds--on as much margin (credit) as a broker will allow. In short, investors sell shares they do not own on the promise to pay for them later, simultaneously buying bonds that are exchangeable for a specified number of shares of the same common stock. Theoretically, money can be made no matter how the underlying stock performs. (If the stock in the package rises, there would be a loss on the short position, but the converts should rise on a dollar-for-dollar basis, providing an effective offset; if the stock obligingly declines, the short position will yield a profit while the loss. on the bonds should be less--given their investment value as interest-bearing securities and the premium usually paid for the exchange privilege.) On paper, the system looks virtually foolproof. Abrams, however, fails to caution the credulous that real markets don't invariably respond with the precision required by his approach. As a practical matter, the risks inherent in margined short positions and convertible bonds--notoriously suspect among Wall Street professionals--are appreciably greater than he indicates. Nor is he the sole proprietor of revealed truth regarding convert/short hedges; another Canadian of somewhat greater financial sophistication, Morton Shulman, discussed the equivalent of the automatic profit-taker technique in Anyone Can Make a Million (1966). Abrams can be faulted as well for omitting the costs of commissions and of interest on margin debt from his examples. In North American securities markets, furthermore, there are fewer than 1,000 issues of convertible bonds, and many bear the brand of distinctly inferior corporate credits; takers are restricted to a relatively small and hazardous investment universe. Too simplistic for beginners, and of interest to seasoned investors principally as an oddity.

Pub Date: Feb. 22, 1980


Page Count: -

Publisher: Wiley

Review Posted Online: N/A

Kirkus Reviews Issue: Feb. 1, 1980