If you are an avid reader of books on investing and are aware of “The Intelligent Investor” by Benjamin Graham, then this man needs no introduction. Deemed the foremost and most authentic mind on finance and investment, Benjamin Graham’s teachings have changed many investors’ outlook on money and how they should invest.
He is regarded as one of the top gurus on finance and investing, also called the “Father of Value Investing” and his work on Security Analysis is still considered one of the most essential manuals for value investing. Graham has shared teachings that influenced some of the world’s best investors including Warren Buffett.
Buffett banks on Graham’s unconventional ideas despite them being not too popular and explains how the latter had a keen understanding of how Wall Street worked. We list below some of his most interesting principles that have stood the test of time.
Be prepared for the market always
You cannot time the market for sure, but can always benefit from its volatility. The bear market is when most investors panic and sell off their investments. The blatant sell-off can be one good opportunity for well-informed investors to buy stocks at good prices. Many investors make the mistake of buying overvalued stocks when the market is on a bull run, thus, causing them to suffer losses. You should be greedy when others are afraid. The market is unpredictable and its investors are bipolar considering how the latter of completely opposite mindsets thrive, survive and flourish in the market. The market offers opportunities to all to buy and sell shares every day. You must approach it with much-needed patience and trust. Just focus on the companies’ fundamentals and mutual funds’ performance. Ignore the clamour and confusion around for better results.
Don’t mistake investing for gambling
Some people rue the investing process as out-and-out gambling as a lack of understanding of how the market works force them to speculate than read, assess and understand the fine details of stock investments. Graham focused on how he could make the best out of equities and earn returns by taking minimal risks. He stated how every investment must guarantee some returns on the invested capital while garnering more returns over and above the inflation rate.
His most famous statement “The individual investor should act consistently as an investor and not as a speculator” resonates with his idea of looking at investing seriously and not treating it as some random gambling. Contrary to the age-old belief of the market being efficient, Graham looked for undervalued stocks that had the potential to do well in future, thus, harping on the benefits of intrinsic value investing or value investing.
Risks are manageable, if not avoidable
“Successful investing is about managing risk, not avoiding it”, says Graham. Every kind of investment including the stock market involves a certain quantum of inherent risk. This explains why you must buy investments at prices below their intrinsic values, thus, ensuring a margin of safety in the long run. Not all investors are able to assimilate the constant upheaval in the stock markets nor can anyone anticipate the next possible market movement. Maintaining a margin of safety will shield them from unwanted apprehensions while helping them stay invested in those stocks. The best way to look for undervalued stocks is to study the portfolios of value mutual fund schemes and then decide on your investments in undervalued stocks accordingly.
Prefer a long-term approach
Graham advises a long-term perspective on our stock markets. He reiterated, “In the short term, a market is a voting machine; in the long term, it is a weighing machine.”
There will be many times when you would feel or witness the market touching rock bottom. Many investors live in the fear of the sky falling on their heads, thus, deterring them from investing in the market. Given the current geopolitical situation and a host of other macroeconomic factors, it is evident that you cannot rely on how the market will behave in the short run. The only way out is to invest with a long-term view as the market is bound to revert to its mean and innate value. Also, when you favour a long-term approach to your investments, you do not rely on investing in equities alone. This is when you decide on an appropriate asset allocation including parking a part of your earnings in debt funds, gold bonds, fixed-income instruments, real estate, cryptocurrencies, etc. The long-term view entails principal protection along with earning returns on investments made.