An investor interested in capital appreciation is not interested in dividends, but rather in seeing the market price of his stock increase. In essence, he likes to buy a stock at $30 and sell it at $60.
There are three advantages to this kind of operation. First, if your judgment has been good, you make more money faster than by relying on dividends. For example, the man who buys 100 shares at $30 and sells even at a 10-point profit has $1,000 (less commissions) to show for his year's work. This represents nearly seven years' worth of dividends from the $30 stock yielding a conventional 5 percent.
Secondly, if you hold your investment for more than six months, your profit is considered a long-term capital gain, taxable at a maximum 25 percent rate that is, for many people, a savings over straight-income rates.
Finally, if your stock doesn't go up as anticipated, there is always the chance that it will at least be a decent income-producer. This is something of a rationalization, of course. There is no use pretending to be in the capital-appreciation business if a little mess of dividends is all you have to show for your efforts. The more consistent course is to drop the non-producing stock (losses, if any, are tax deductible) and shop around for a winner. This, to be sure, takes guts. There's nothing like a couple of growth stocks that don't grow to take the steam out of a capital-appreciation man. On the other hand, the gloriously rising market since World War II has simplified the task of discovering and getting aboard a company with promising prospects. And, as noted, an investor could wait five years for his 10-point gain and still be ahead of the plugger piling up dividends.
Capital appreciation, it should be noted, is an omnibus term covering any change or advance in a company's position, which might be reflected in the market price. It may mean the emergence of a new company in a new industry, the coming of age of a speculative youngster of a decade or two ago, or even new evidence of vitality in an established veteran.
In the past year or so, for instance, the stock of Ampex, Inc., a bright little California company manufacturing top-notch equipment for the booming tape-recorder industry, has more than doubled in value. Dozens of small companies dealing in electronics, precision equipment, and other fruits of current scientific research (Tracerlab, National Research, Beckman Instruments, etc.) are similarly attracting attention and consequent jumps in price. Somewhat more established and riding crests of speculative interest are such stocks as General Dynamics, builder of atomic submarines and Convair airplanes; Owens-Corning Fiberglas, manufacturer of insulation, filters and textiles, and glass-fiber boats, and Bendix Aviation, no infant, but investing heavily in diversification and new-product development. Dow and Minnesota Mining might also be grouped here, although possibly by now they should be included among the older companiesCorning Glass, Goodrich, Union Carbide, Westinghouse, National Lead, Minneapolis Honeywell, Eastman Kodakwhose youthful spirit and astonishing technological resources have kept them in the forefront of American industry for years.
So capital-appreciation fans, take note. There are plenty of "safe" investments out there for the person who reads the financial news and looks for the company that's not going anywhere. And as always, consulting a good broker can give you great insight into the growth stocks of this period.