The father of modern securities analysis educated the first
generation of value investors
Benjamin Graham looms large in the history and practice of securities analysis. While "Security Analysis" was undoubtedly his magnum opus, Graham left another important legacy: his students.
Of course, every value investor knows Graham’s most famous protege, Warren Buffett (Trades, Portfolio), has employed his teacher’s principles to become one of history’s most successful investors at the helm of Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B). But many other successful investors developed their skills under Graham’s tutelage and, over the years, several have shared their most memorable moments with the father of value investing.
Ten basic principles of investing by Benjamin Graham (books citation)
1. Self-education is a key to success
“The art of investing has one feature, which is not always paid due attention. Unprofessional investor, possessing minimal abilities and applying minimum efforts, can achieve if not brilliant, then stable results. However, in order to achieve higher indicators, colossal costs of mental and physical energy will be required. Half-measures are indispensable here — if you try to get only a little new knowledge and only slightly improve your skills in order for the investment program to be slightly above average, you may find that you have only made it worse,” Graham writes.
2. If you are a beginner use only qualitative instruments
“We focused on the advantages of a simple portfolio policy, that is, the formation of a diversified portfolio through first-class bonds and shares of the largest companies. Such an investment policy with the minimum assistance of experts is able to implement any investor. Chasing the securities outside this reliable and safe policy is fraught with serious problems, especially emotional ones”, the author of the” Reasonable Investor “states.
3. If you are the newbie do not play against the market
“We strongly recommend that newcomers on the securities market do not spend their efforts and money on attempts to defeat the stock market. A good option for inexperienced investors is to use the minimum allowable means to test their judgments about underestimation or market revaluation of certain securities, “Graham said.
4. Think twice when you invest in something considered to be perspective
“1. Explicit prospects for business growth do not guarantee investors profit. 2. Experts can not offer reliable methods for selecting shares of the most promising companies in the most promising sectors, “the guru says.
5. Investments vs Speculations
“Not only investment, but also speculation can be reasonable. The latter are unreasonable in cases when: 1) the investor thinks he is investing, but is actually engaged in speculation; 2) the investor makes a major transaction without the relevant knowledge and experience, and 3) the investor conducts a risky speculative operation that requires more investment than he can afford to lose in case of failure, “- says Graham.
6. Do not forget to diversify your portfolio
“The main principle of passive investment policy: regardless of the situation on the market, part of the funds should be invested in bonds, part — in shares. The ratio between these two types of securities in the portfolio can be from 50:50 to 25:75 depending on the situation on the market. “ “An investor should enter an adequate but not excessive level of portfolio diversification. This can be achieved by buying shares of at least ten and a maximum of thirty different companies, “Graham writes.
7. Do not constitute portfolio only of shares, avoiding bonds for inflation expectations
“If an investor forms a portfolio solely from stocks, he risks seriously suffer as a result of both significant growth and a serious drop in their rate, especially if he is guided by inflation expectations in his actions. In this case, in the conditions of the bull market, he will perceive his growth not as a signal about the inevitable subsequent fall and the opportunity to sell shares on favorable terms. On the contrary, he will see in this confirmation of the correctness of the inflation hypothesis and will continue to buy shares regardless of how much the market has grown, “Graham said.
8. If you are not a professional, choose blue chips
“As an investment object, a passive investor must choose shares of financially stable companies that have demonstrated a high profitability for a long period of time. Aggressive investors can buy ordinary shares of other companies, choosing them based on clearly formulated criteria and on the basis of comprehensive analysis, “- says the teacher of Warren Buffett.
9. Use the Martingale Way
“An investor can resort to an investment strategy based on the method of averaged uniform investment. In this case, he will regularly (monthly or quarterly) invest in the purchase of shares of the same amount. Accordingly, in the falling market, it will buy more shares, and on the growing market — less. In the end, most likely, the price of its shares will be quite acceptable, “- says Graham.
10. Active investors should have a strong strategy
“The real chances for a higher profit compared to the average market for a long time can only give a special strategy. This strategy should be first thought out and effective, and secondly be unpopular among the participants of the stock market, “ the legendary financier considers.
Here is the list of Top Best books by Benjamin Graham:
#1 – Security Analysis (Sixth Edition)
The book which was initially written by Benjamin Graham and David Dodd is one of the most established series in Financial analysis.
Key Highlights from this Top Benjamin Graham Book
- Teaching the investors a new/enhanced approach for assessing the business that lies behind the security.
- A brief introduction by Warren Buffet and the benefits he has drawn from this book.
- Professionally trained investors can utilize the financial analysis of the corporation for determining the intrinsic value of the company.
- It further explains how Graham’s margin-of-safety principle can be used for making a profit. The objective is to show the investors how stocks can be bought when the stock price is below original thereby earning a good level of returns in good times.
- It contains multiple real-life instances for highlighting the tendencies of markets to undervalue securities which otherwise do not seem to be favorable. It also shows that if the fundamentals are strong, how maximum benefits can be extracted.
#2 – The Intelligent Investor
This is one of the most widely acclaimed books by Benjamin Graham on value investing. This Benjamin Graham book aims at preventing potential and current investors from substantial errors while teaching various strategies for achieving long-term investment goals.
Key Highlights from this Best Book by Benjamin Graham
- The book highlights various principles and strategies for safe investment without taking high levels of risks.
- Some of the important concepts useful for the latest financial orders and plans have been explained in a crisp and concise language.
- All concepts and principles essential for day to day financial transactions have been explained with simple examples for better clarity and understanding.
One of the reasons this best book by Benjamin Graham is preferred by the modern-day investors is due to the lethal combination of an original plan by Benjamin Graham along with the current financial situations.
#4 – The Intelligent Forex Investor: World Currency and World Commodities
Through this top Benjamin Graham book, the author displays a tremendous level of foresight on how commodity reserves should play a critical role in the economic policy.
Key Highlights from this Best Benjamin Graham Book
If the value of commodities is stabilized, the economy can achieve the objectives of:
- Foreign-exchange stability
- Price Stability
- Protective stockpiles
- Healthy balanced expansion of the world’s output and consumption of essential goods.
The emphasis is laid on commodities since the condition of the overall economy was grave post World War and the value of commodities was critical for survival and possible revival of the global financial condition.
Bonus: "The Intelligent Investor" PDF https://bit.ly/2urCHIA
