The Hindu Business Line : Investment Nuggets

Benjamin Graham, also known as the “Father of Value Investing” and the “Dean of Wall Street”, was a pioneer in driving home to investors the importance of crunching numbers. He popularised the examination of pri ce-to-earnings (P/E) ratios, debt-to-equity ratios, dividend records, net current assets, book values, and earnings growth. Conservative in his financial teachings, he introduced the concept of looking at share investment as buying a share in a business, rather than stand-alone investment. He also devised Mr Market, the concept of the stock market as a schizophrenic entity. His investment tenets have been both followed and modified, not only by Buffett, but other legendary and successful investors like Walter Schloss of WJS Partners, Tom Knapp and Ed Anderson of Tweedy Browne Partners and Bill Ruane’s Sequoia Fund.

“The individual investor should act consistently as an investor and not as a speculator. This means..... that he should be able to justify every purchase he makes and each price he pays by impersonal, objective reasoning that sati sfies him that he is getting more than his money’s worth for his purchase.”

“An investment operation is one which, upon thorough analysis promises safety of principal and adequate return. Operations not meeting these requirements are speculative.”“Most of the time common stocks are subject to irra tional and excessive price fluctuations in both directions as the consequence of the ingrained tendency of most people to speculate or gamble... to give way to hope, fear and greed.”

“You are neither right nor wrong because the crowd disagrees with you. You are right (or wrong) because your data and reasoning are right (or wrong).”

“The one principle that applies to nearly all these so-called ‘technical approaches’ is that one should buy because a stock or the market has gone up and one should sell because it has declined. This is the exact opposite of sound business sense everywhere else, and it is most unlikely that it can lead to lasting success in Wall Street. In our own stock market experience and observation, extending over 50 years, we have not known a single person who has consistently or lastingly made money by thus ‘following the market’. “We do not hesitate to declare that this approach is as fallacious as it is popular.”

“While enthusiasm may be necessary for great accomplishments elsewhere, on Wall Street it almost invariably leads to disaster.”

“Stocks will fluctuate substantially in value. For a true investor, the only significant meaning of price fluctuations is that they offer ... an opportunity to buy wisely when prices fall sharply and to sell wisely when they advance a great deal.”

“To have a true investment, there must be a true margin of safety. And a true margin of safety is one that can be demonstrated by figures, by persuasive reasoning, and by reference to a body of actual experience.”

“Strangely enough we shall suggest as one of our chief requirements... that our readers limit themselves to issues selling not far above their tangible-asset value.”

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