nenos 25/06/2023
It requires a great deal of boldnesss and a great deal of caution to make a great fortune. And when you have got it, it requires ten times as much wit to keep it -Meyer Rothschild
Benjamin Graham is considered the father of value investing, he underlies basic ideas to become a successful investor using the chaining of empirical facts to consolidate his approach towards the market. Mr. Graham managed to thrive at his investment partnership Graham-Newman, surpassing the market at roughly 20% for over 20 years. His reputation precedes him and his legacy passed onto Warren Buffett, who always reinforces how important is to behave as advised no matter how magnanimous a threat or might of the enemy in question.
The “Graham’s method” was a breakthrough, the intelligent investor decoding the Security analysis allegedly turned medieval investing corporations guided by superstition and archaic rituals into a modern profession. Mr. Graham’s enlightenment subverts major social conventions in the early 1900’s about the investment scope of understanding. There are countless veils behind speculation, and Mr. Graham have a great deal to tell us about intrinsic values and embedded risks.
The cruel irony is: We invest in the present, but we also invest for the future. Retrospection is clear as the light of day, but prediction is blurred. So, how to navigate if the speculative factor is always present? First of all: Don’t think you can outsmart the market or the players on their own game. Then, understand how the market has been working, what the greats went through, prioritize caution instead of greed, seek margins of safety, diversify to some extent and do your own research, after all, advisors won’t always meet your best interest if you don’t make perfectly clear you’re interested in value and not prices.
Mr. Market humor is far from stable, every oscillation can lead to generosity or ruthlessness, it has the power to mutate prices and separate them completely from their companies, it swallows people with bad temperament for as long as we can remember… countless crashed & burned. Fortunately, there is an easy spottable threshold to reason shown by psychologist Daniel Kahneman: “The average investor doesn’t make judgments based on the actual frequency with which the event has occurred, but rather based on their memory.”
To invest with intelligence means to have a disciplined behavior. Investing consists in three key elements: Exhausting analysis of a company and the health of their business before buying, deliberately protecting yourself from serious downfalls and aspiring “suitable” performances instead of extraordinary. Furthermore, there are two ways in this path: You either keep researching incessantly as an enterprise investor or establish a permanent portfolio to automatic pilot and become a defensive investor.
Beware: For both paths, you must be prepared to keep a permanent record and exhaustively detail of your acquisitions then you can begin diversifying resources between obligations and ordinary actions. Keeping that in mind, because enterprise investor has greater exposure, they spend a great amount of energy studying and reading to choose strategies carefully. One catch is to focus on undervalued big companies, since they almost always don’t imply a definite loss and can be lucrative later on.
But, if you feel pressured, then it’s time to adopt a passive approach. Mr. Graham also implements 7 basic requirements to include in your portfolio such as: adequate size, strongly financial situation, uninterrupted dividend payments, no earning deficits, decennial earning of growth of at least one-third per share, stock price no more than 1.5 times net asset value and price no more than 15 times average earnings over the last three years.
For defensive investors which resorts to analysts, it’s important to recognize that their job is situated somewhere between math and rhetoric. Mr. Graham basic thesis is: “If the investor relies primarily on third-party advice to manage their resources, they should limit their operations strictly standard and even uncreative forms of investment. For less conventional suggestions, be receptive to the extent of your increased knowledge and experience to independently evaluate recommendations.”
End to end, Investing is also a journey and more intelligent when it looks like a business. Fiercely, Mr. Graham tell us to react as investors because when buying a stock, we become one of the owners entitled to an opinion. Despite the real growth, inflationary growth and speculative fluctuations, it’s important to apply the sieve method in order to have a trip which is equally safe, trustworthy and adventurous.
Link to my highlights: https://drive.google.com/file/d/1CykNUt1hCZ5jvHtBuc4gpQgRYOX5HU_D/view?usp=share_link
Things change. When Mr. Graham stopped revising the intelligent investor he answered: "I am no longer an advocate of elaborate techniques of security analysis in order to find superior value opportunities. This was a rewarding activity, say, 40 years ago, when our textbook was first published. But the situation has changed a great deal since then."