The “Investment world” is myriad with a wide a range of theories and practices.
One classical theory which has rightfully acquired worldwide acceptance is“Value Investing”
Originally created by Benjamin Graham and David Dodd in 1928 when they began teaching in Columbia Business School. Benjamin Graham is also the author of two seminal books Security Analysis (1934)andThe Intelligent Investor (1949)
Benjamin Graham’s student, who is the world’s richest investor Warren Buffet and his partner Charlie Munger have been teaching and practicing this theory for more than 40 years now.
- A few simple guidelines from The Intelligent Investor (1949)are given here.
- Intelligence in investing means being patient, disciplined, eager to learn, able to control emotions, thinking for oneself, become a critical thinker and not trusting any “facts”.
- If you invest with patient confidence you can take advantage of even the worst bear markets. Think for yourself… and take control of your emotions…
- A stock is not a ticker symbol it is an ownership interest in an actual business, with an underlying value that does not depend on its share price.
- The future value of every investment is a function of its present price. The higher the price you pay, the lower your return will be.
- Stocks, which are priced at lower than their book value are more attractive and offer “better intrinsic value”. An investor can make a choice of a better than average portfolio by selecting a diversified group of stocks at prices below their book value and which have made some profits and have declared some dividends.
- A “shrewd investor” is the one who bought in a bear market (when everyone is selling) and who sold in a bull market (when everyone is buying)
- The “margin of safety” is the difference between the percentage rate of earnings on the stock at the price you pay for it and the rate of interest on bonds, and that margin of safety is the difference, which would absorb unsatisfactory developments.
- Every investor must have an automatic investment plan (purchasing stocks or equity mutual funds or low cost index funds every month using a fixed amount of investment) and it should be for a minimum of 10 years. Hold it for 20 years or more, adding new money every month, and you are all but certain to outperform the vast majority of professional investors.
- Investment is most intelligent when it is most businesslike.
Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.