Old Time Investment Principles Still the Most Relevant Today

2015-03-11 11:58

Sunburst Africa – Investment guru, Benjamin Graham in his all-time bestselling book- “The Intelligent investor” among many other things called on intelligent investors to always buy low and sell high. This principle remain relevant today as the stock markets the world over are becoming more volatile than they were in Graham’s days. Investors need to focus on three main things when making an investment

  • How do I minimize the odds of suffering irreversible loses?
  • How do I maximize chances of archiving sustainable gains?
  • How do I control the self-defeating behaviour that keeps most investors from reaching their full potential?

One may ask, how do I minimize the odds of suffering irreversible loses? My first advice leaning from Graham is that the first thing is for all investors to understand the difference between investing and speculating and the difference between market price and underlying value. An understanding of these differences will help you select and buy high grade bonds and diversified ordinary stocks at low prices. Investment value always goes up and down at some point and it is impossible to eliminate this but it is important to know how to manage it. For example, following the tech highs of the dod.com of the 1990s, it sounded absurd to think of losses in the tech industry as they gained nearly double their price daily. But by 2002 with the dod.com crash and the collapse of many IT companies, investors lost about 95% , which meant to be back where they were at the start they needed to gain 1,900%- therefore taking a foolish risk can wipe away all your money.  Intelligent investors know that it is not the current earning potential alone of a company that determines their decisions to buy these companies but the future earning potentials.

You may be asking yourself, after I have carefully done this homework and selected companies with high earnings potential, how do I maximize the chances of archiving sustainable gains? The response to this is based on my investment principle of buying and holding for the long run. I believe in the principle of the seed- investment for the long-run unlike speculating. I carefully, analyse and buy companies with great fundamentals, great earnings potentials, with great management and  hold such for the long run. I from time to time evaluate my portfolio and do some balancing. However, my investment principle is that of buy and hold and make compounded earnings. I will continue to educate my reading community on these principles and how they apply to different stocks.

You may be saying to yourself, yea right but how do I control the self-defeating behaviour that keeps most investors from reaching their full potential? My take on this is that knowledge and practice will continue to make our reading community better at investing. I will continue to urge readers to always base their investment decisions on a margin of safety. Generally sound investment principles produces generally sound results. We must act on the assumption that they will continue to do so

Learning from Benjamin Graham- to be an intelligent investor- has nothing to do with IQ but means being patient, disciplined, and eager to learn; able to harness your emotions and think for yourself. My articles and newsletters will be mostly focused on educating my readers to understand the stock market, learn the psychology of an investor, and how to invest smartly. Old time investment principles have proven to yield returns that are over and above the JSE top 40 index and various other indices. On a weekly basis I will continue to share these principles with our reading community.

have a good week and remember that the best person to determine how your hard earned money should be invested is you. To do this you need to educate yourself about investment basics.

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AB praises selfless skipper

2010-11-21 18:15

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