Monday, April 04, 2011

Benjamin Grahams principles to Invest

The famous investment guru, Benjamin Graham, once said, ‘Investment is most intelligent when it is most businesslike.’ Yet, if one were to take a look at the profile of an average investor in the equity markets, there emerges a very capable businessman who has gained success in his own business but has operated in the markets with complete disregard of all sound business principles of business. In this regard, let us take a look at some of these principles that have been completely violated in the markets, but if followed with discipline, would result into investors earning adequate returns.

The first of these principles, as given by Graham, is to ‘know what you are doing.’ This is similar to knowing your business. In the investing sense, this means that an investor should not try to make business profits out of his investments. More simplistically, this means that he should not try to earn returns in excess of normal interest and dividend income, unless he knows as much about his investments’ values as he would know about the value of his business. If he defies this basic principle, he is not an investor, but a speculator who is betting on his intuition without the adequate knowledge to back the same.

The second principle is ‘not letting anyone else run your business’ (stock market investment, in this sense) unless one is pretty sure of the integrity and ability (the management of a company or a mutual fund). This rule would help investors determine the conditions under which he entrusts his money for someone else to manage.

The third principle is for the investor to ‘undertake an investment only when a reliable calculation indicates that there is a fair chance for a reasonable return on the investment.’ More simply, based on this principle, an investor’s strategy for earning profits should be based on careful calculations and research rather than plain optimism. Not following this principle is equivalent to putting your principal to a considerable risk.

And finally, the most important principle is to ‘have the courage of knowledge and experience.’ This is to say that once you have arrived at a conclusion from the facts and careful calculations, you need to act on the same caring not much about what everyone else is doing (or betting on). This is discipline, the most important rule at the root of sound investing.

By following these principles and not giving in to greed/fear that rising/falling markets bring with them, you can ensure that the consequences of your mistakes would never be disastrous. And more importantly, you will not blame the stock markets for your losses. When that happens, no matter what the markets throw at you, you will always be able to say with much confidence.

Source : Equitymaster


Blogger cottasofia said...

Thanks for blog. Benjamin Graham and Invest Like Warren Buffett wraps a lifetime of investing wisdom into one highly accessible package. An intelligent guide to analyzing and valuing investment targets, it tells investors what questions to ask, what answers to expect, and how to approach any stock as a skeptical, common-sense business analyst.

Real Estate Attorney Miami

12:44 AM  
Blogger sharetipsinfo said...

Lot of global tensions is going on at this time. Japan is expected to pull out its money from the global market as they want to revamp their country now. In current scenario anything can happen in the Share market Investors are advised not to panic and stay invested only safe traders and investors should exit their long positions on every high and one can use every decline as an opportunity to enter market again.

11:16 PM  
Blogger MANEKUTAU said...

New Booming Investment 2011 From UK.
with an official certificate and a valid address
Please Visit My Blog For It detail :

9:10 AM  
Blogger SMC Global said...

Happy to see your blog as it is just what I’ve looking for and excited to read all the posts.I am looking forward to another great articles from you.Share Market Investment India

5:52 AM  
Blogger sharegyan said...

If you are trading in NSE, BSE, MCX and in NCDEX then let sharegyan give you all stock trading gyan

9:46 PM  
Blogger sharegyan said...

If you are trading in NSE, BSE, MCX and in NCDEX then let sharegyan give you all stock trading gyan

9:57 PM  
Blogger Business Plan Writers said...

Global tensions are high at this time, many countries focusing on internal improvements such as infrastructure rather investing in global markets.

Business Plan Writers

12:07 AM  
Blogger stocktaj seo said...

Nice post. Thank you for sharing. Stock market trading can fetch you a lot of profit if we play it smart.


9:11 PM  
Blogger stocktaj seo said...

Nice post. Thank you for sharing. Stock market trading can fetch you a lot of profit if we play it smart.

Indian Stock Market Tips

1:55 AM  
Blogger Bull Gains said...

Great post this is. Thanks for sharing.

Best Stock Market Tips

4:33 AM  
Blogger said...

visit: - Commodity Market Tips, Commodity Tips

9:53 PM  
Blogger stocktaj seo said...

Nice informative post. Thanks.
NSE Tips, Nifty Stock Tips

10:59 PM  
Blogger Ruchi Agrawal said...

The post is nice and pleasant to read. I have known very important things about investment and trading here.

Buy Today Sell Tomorrow Tips

4:54 AM  

Post a Comment

<< Home