Do you know how to minimize the odds of suffering irreversible losses?
Do you know how to maximize the odds of achieving sustainable gains?
Do you know how to control self-defeating behaviour that keeps most from reaching their full potential in investing?
Do you know that intelligent investing does not refer to IQ but rather to being patient, disciplined and eager to learn, and able to harness your emotions and think for yourself?
Do you know that high IQ and higher education are not enought to make an investor intelligent?
Do you know that being an intelligent investor is more a matter of 'character' than 'brain'?
Do you know the investment techniques, the adoption and execution of an investment policy suitable for laymen (yourself)?
Do you know the investment principles and investors' attitudes maybe of greater importance in investing than the technique of analyzing securities?
Do you know that there is limited usefulness in reading a book on 'how to make a million', as there are no sure and easy paths to riches on the stock market here and anywhere else?
Do you know of any single person who has consistently or lastingly made money by 'following (timing) the market'?
Do you know how to guide yourself from the areas of possible substantial error and to develop policies with which you will be comfortable?
Do you know the investor's chief problem -- and even his worst enemy -- is likely to be himself?
Do you know the importance of psychology of investors and the field of behavioural finance in guiding investing?
Do you know how to measure or quantify value of business or stock?
Do you know having the habit of relating what is paid to what is being offered is an invaluable trait in investment?
Do you know that for 99 issues out of 100, you could say that at some price they are cheap enough to buy and at other price they would be so dear that they should be sold?
Do you know that the art of investment has one characteristic that is not generally appreciated; that a creditable, if unspectacular, result can be achieved by the lay investor with a minimum of effort and capability?
Do you know that to improve on this above easily attainable standard requires much application and more than a trace of wisdom?
Do you know that if you merely try to bring just a little extra knowledge and cleverness to bear upon your investment program, instead of realizing a little better than normal results, you may well find that you have done worse?
Read: The Intelligent Investor by Benjamin Graham
Showing posts with label Intelligent Investor Notes. Show all posts
Showing posts with label Intelligent Investor Notes. Show all posts
Wednesday 18 November 2009
Saturday 25 July 2009
Investing in Investment Funds
Chapter 9 - Investing in Investment Funds
Graham basically says that there are three questions you need to answer before investing in any fund.
1. Is there any way by which the investor can assure himself better than average results by choosing the right funds? [...]
2. If not, how can he avoid choosing funds that will give him worse than average results?
3. Can he make intelligent choices between different types of funds - e.g., balanced versus all-stock, open-end versus closed-end, load versus no-load?
Graham states that in general, individuals who invest in balanced funds tend to do better than individuals who invest in individual common stocks. The reason is simple: a person who is not an expert at picking individual stocks and balancing a portfolio is usually better off in the hands of a professional money manager even after the costs.
However (and this is big), Graham largely seems to suggest that the fees in a typical mutual fund are far too high and the time invested in finding a bargain fund (one with good results with limited costs) is well worth the time. He also believes that you should not expect to ever radically beat the market with a fund, and that funds who have astounding short term gains are usually not playing a healthy long-term gain - something that’s been shown over and over again over the history of investing.
Unsurprisingly, Graham isn’t particularly a big cheerleader of traditional mutual funds. One of Graham’s big requirements for investing is that you know exactly what you’re invested in, and by buying into a fund, you cede that control to someone else.
Of course, even if you’re using an index fund strategy, you still need to pay attention to diversification and should not have all of your eggs in one basket. Just because you’re invested with index funds doesn’t mean you shouldn’t balance your portfolio between stocks, bonds, and cash.
Graham basically says that there are three questions you need to answer before investing in any fund.
1. Is there any way by which the investor can assure himself better than average results by choosing the right funds? [...]
2. If not, how can he avoid choosing funds that will give him worse than average results?
3. Can he make intelligent choices between different types of funds - e.g., balanced versus all-stock, open-end versus closed-end, load versus no-load?
Graham states that in general, individuals who invest in balanced funds tend to do better than individuals who invest in individual common stocks. The reason is simple: a person who is not an expert at picking individual stocks and balancing a portfolio is usually better off in the hands of a professional money manager even after the costs.
However (and this is big), Graham largely seems to suggest that the fees in a typical mutual fund are far too high and the time invested in finding a bargain fund (one with good results with limited costs) is well worth the time. He also believes that you should not expect to ever radically beat the market with a fund, and that funds who have astounding short term gains are usually not playing a healthy long-term gain - something that’s been shown over and over again over the history of investing.
Unsurprisingly, Graham isn’t particularly a big cheerleader of traditional mutual funds. One of Graham’s big requirements for investing is that you know exactly what you’re invested in, and by buying into a fund, you cede that control to someone else.
Of course, even if you’re using an index fund strategy, you still need to pay attention to diversification and should not have all of your eggs in one basket. Just because you’re invested with index funds doesn’t mean you shouldn’t balance your portfolio between stocks, bonds, and cash.
Everything Buffett Needs to Know, He Learned Right Here
Everything Buffett Needs to Know, He Learned Right Here
By Morgan Housel
July 17, 2009
Millions of investors chase Warren Buffett. Tens of thousands attend Berkshire Hathaway's (NYSE: BRK-A) (NYSE: BRK-B) annual shareholder meetings. Wealthy fans bid millions of dollars to have lunch with him. His appearances on CNBC bring trading floors to a halt. People want to know what he's thinking. Why he's different. What secret has made him so much more successful than anyone else.
What's interesting -- and a little ironic -- is that Buffett has never held back what his secret is. As he recently told PBS:
I read a book, what is it, almost 60 years ago roughly, called The Intelligent Investor and I really learned all I needed to know about investing from that book, and particular chapters 8 and 20 … I haven't changed anything since.
One book. Two chapters. Legendary success.
You'd think such precisely guided advice would draw more attention. Not only has Buffett filtered his success down to one book, he's even listed the two specific chapters on which he built his wisdom. He's making this almost embarrassingly easy for us.
What bits of sage advice do these two chapters -- published in 1949 by Buffett's early mentor Ben Graham -- hold? Here are key points from each one.
Chapter 8: The Investor and Market Fluctuations
Markets go up. Markets go down. Most of us accept this fact until we experience the latter, at which time we throw up our hands and consider the whole thing a sham.
That kind of behavior is what Chapter 8 is all about: dealing with market movements, and how fundamental they are to investing success.
We have a tendency to become confident and invest the most money after stocks have logged big gains, and vice versa -- selling in panic after big drops. Two seconds of logical thought will tell you this isn't rational. Yet we do it over and over again.
Buffett built his success on exploiting the market's movements, rather than following them with lemming-like obedience. He bought companies like Coca-Cola (NYSE: KO) and Wells Fargo (NYSE: WFC) when the market wanted nothing to do with them. He then sat on his hands and laughed when companies like Microsoft (Nasdaq: MSFT) and Amazon.com (Nasdaq: AMZN) soared during the dot-com boom, ignoring heckles about his technophobic incompetence. It's truly as simple as "being greedy when others are fearful, and fearful when others are greedy."
Here's how Graham puts it in Chapter 8:
The true investor scarcely ever is forced to sell his shares, and at all other times he is free to disregard the current price quotation. He need pay attention to it and act upon it only to the extent that it suits his book, and no more. Thus the investor who permits himself to be stampeded or unduly worried by unjustified market declines in his holdings is perversely transforming his basic advantage into a basic disadvantage. That man would be better off if his stocks had no market quotation at all, for he would then be spared the mental anguish caused him by other persons' mistakes of judgment.
Chapter 20: Margin of Safety as the Central Concept of Investment
Graham opens Chapter 20 with a potent message:
In the old legend the wise men finally boiled down the history of mortal affairs into the single phrase, 'This too will pass.' Confronted with a like challenge to distill the secret of sound investment into three words, we venture the motto, MARGIN OF SAFETY.
We have an overwhelming urge to expect certainty, but live in a world that is anything but. Forward-looking projections of a stock's value are based on assumptions, prone to wild miscalculations and unforeseen events. And by prone, I mean 100% assured.
There's only one surefire solution to this: Pay far less for stocks than your estimate of value, leaving room for error. That's a margin of safety. It's giving yourself room to be wrong, knowing that you probably will be. Think a company is worth $50 a share? Great. Don't pay more than $25 for it. Think a company could earn $2 per share next year? Great. Set yourself up so you'll profit if it only makes a buck. There has to be a wide range of acceptance between the projected and the potential.
One stock that might epitomize the opposite of a margin of safety is Visa (NYSE: V). Visa is a great company, to be sure, exploiting a global consumer shifting from paper to plastic transactions. But it currently trades at more than 22 times 2009 earnings. My calculations of growth show this is probably what the company is worth if everything goes according to plan.
But what if everything doesn't? What if growth hits a speed bump? What if management drops the ball? What if consumer spending takes a sustained nosedive? What if, what if, what if -- that's the basis of a margin of safety. There has to be sizable room for error.
Moving on
These lessons might seem basic and dull. They are. Yet too many investors fail to implement them. Buffett obviously isn't the only one who's read The Intelligent Investor -- he's simply put its lessons and theories to work in a habitual manner.
Our Motley Fool Inside Value team strives to put these basic values to work with all of its recommendations, which are currently outperforming the market by an average of four percentage points each. To see what we're recommending right now, you can try the service free for 30 days. Click here to get started. There's no obligation to subscribe.
Fool contributor Morgan Housel owns shares of Berkshire Hathaway. Amazon.com and Berkshire Hathaway are Motley Fool Stock Advisor picks. Berkshire Hathaway, Coca-Cola, and Microsoft are Motley Fool Inside Value selections. Coca-Cola is a Motley Fool Income Investor recommendation. The Fool owns shares of Berkshire Hathaway, and has a disclosure policy.
http://www.fool.com/investing/value/2009/07/17/everything-buffett-needs-to-know-he-learned-right-.aspx
By Morgan Housel
July 17, 2009
Millions of investors chase Warren Buffett. Tens of thousands attend Berkshire Hathaway's (NYSE: BRK-A) (NYSE: BRK-B) annual shareholder meetings. Wealthy fans bid millions of dollars to have lunch with him. His appearances on CNBC bring trading floors to a halt. People want to know what he's thinking. Why he's different. What secret has made him so much more successful than anyone else.
What's interesting -- and a little ironic -- is that Buffett has never held back what his secret is. As he recently told PBS:
I read a book, what is it, almost 60 years ago roughly, called The Intelligent Investor and I really learned all I needed to know about investing from that book, and particular chapters 8 and 20 … I haven't changed anything since.
One book. Two chapters. Legendary success.
You'd think such precisely guided advice would draw more attention. Not only has Buffett filtered his success down to one book, he's even listed the two specific chapters on which he built his wisdom. He's making this almost embarrassingly easy for us.
What bits of sage advice do these two chapters -- published in 1949 by Buffett's early mentor Ben Graham -- hold? Here are key points from each one.
Chapter 8: The Investor and Market Fluctuations
Markets go up. Markets go down. Most of us accept this fact until we experience the latter, at which time we throw up our hands and consider the whole thing a sham.
That kind of behavior is what Chapter 8 is all about: dealing with market movements, and how fundamental they are to investing success.
We have a tendency to become confident and invest the most money after stocks have logged big gains, and vice versa -- selling in panic after big drops. Two seconds of logical thought will tell you this isn't rational. Yet we do it over and over again.
Buffett built his success on exploiting the market's movements, rather than following them with lemming-like obedience. He bought companies like Coca-Cola (NYSE: KO) and Wells Fargo (NYSE: WFC) when the market wanted nothing to do with them. He then sat on his hands and laughed when companies like Microsoft (Nasdaq: MSFT) and Amazon.com (Nasdaq: AMZN) soared during the dot-com boom, ignoring heckles about his technophobic incompetence. It's truly as simple as "being greedy when others are fearful, and fearful when others are greedy."
Here's how Graham puts it in Chapter 8:
The true investor scarcely ever is forced to sell his shares, and at all other times he is free to disregard the current price quotation. He need pay attention to it and act upon it only to the extent that it suits his book, and no more. Thus the investor who permits himself to be stampeded or unduly worried by unjustified market declines in his holdings is perversely transforming his basic advantage into a basic disadvantage. That man would be better off if his stocks had no market quotation at all, for he would then be spared the mental anguish caused him by other persons' mistakes of judgment.
Chapter 20: Margin of Safety as the Central Concept of Investment
Graham opens Chapter 20 with a potent message:
In the old legend the wise men finally boiled down the history of mortal affairs into the single phrase, 'This too will pass.' Confronted with a like challenge to distill the secret of sound investment into three words, we venture the motto, MARGIN OF SAFETY.
We have an overwhelming urge to expect certainty, but live in a world that is anything but. Forward-looking projections of a stock's value are based on assumptions, prone to wild miscalculations and unforeseen events. And by prone, I mean 100% assured.
There's only one surefire solution to this: Pay far less for stocks than your estimate of value, leaving room for error. That's a margin of safety. It's giving yourself room to be wrong, knowing that you probably will be. Think a company is worth $50 a share? Great. Don't pay more than $25 for it. Think a company could earn $2 per share next year? Great. Set yourself up so you'll profit if it only makes a buck. There has to be a wide range of acceptance between the projected and the potential.
One stock that might epitomize the opposite of a margin of safety is Visa (NYSE: V). Visa is a great company, to be sure, exploiting a global consumer shifting from paper to plastic transactions. But it currently trades at more than 22 times 2009 earnings. My calculations of growth show this is probably what the company is worth if everything goes according to plan.
But what if everything doesn't? What if growth hits a speed bump? What if management drops the ball? What if consumer spending takes a sustained nosedive? What if, what if, what if -- that's the basis of a margin of safety. There has to be sizable room for error.
Moving on
These lessons might seem basic and dull. They are. Yet too many investors fail to implement them. Buffett obviously isn't the only one who's read The Intelligent Investor -- he's simply put its lessons and theories to work in a habitual manner.
Our Motley Fool Inside Value team strives to put these basic values to work with all of its recommendations, which are currently outperforming the market by an average of four percentage points each. To see what we're recommending right now, you can try the service free for 30 days. Click here to get started. There's no obligation to subscribe.
Fool contributor Morgan Housel owns shares of Berkshire Hathaway. Amazon.com and Berkshire Hathaway are Motley Fool Stock Advisor picks. Berkshire Hathaway, Coca-Cola, and Microsoft are Motley Fool Inside Value selections. Coca-Cola is a Motley Fool Income Investor recommendation. The Fool owns shares of Berkshire Hathaway, and has a disclosure policy.
http://www.fool.com/investing/value/2009/07/17/everything-buffett-needs-to-know-he-learned-right-.aspx
Wednesday 1 July 2009
Intelligent Investor Notes
This book will teach you three powerful lessons:
+ how you can minimize the odds of suffering irreversible losses;
+ how you can maximize the chances of achieving sustainable games;
+ how you can control the self-defeating behavior that keeps most investors from reaching their full potential.
And Graham’s ticket to that is value investing.
The Intelligent Investor: Introduction
The Intelligent Investor: Investment Versus Speculation
The Intelligent Investor: The Investor and Inflation
The Intelligent Investor: A Century of Stock Market History
The Intelligent Investor: General Portfolio Policy for the Defensive Investor
The Intelligent Investor: The Defensive Investor and Common Stocks
The Intelligent Investor: A Negative Approach to Portfolio Policy for the Enterprising Investor
The Intelligent Investor: The Positive Side to Portfolio Policy for the Enterprising Investor
The Intelligent Investor: The Investor and Market Fluctuations
The Intelligent Investor: Investing in Investment Funds
The Intelligent Investor: The Investor and His Advisers
The Intelligent Investor: A General Approach to Security Analysis for the Lay Investor
The Intelligent Investor: Investment Versus Speculation
The Intelligent Investor: The Investor and Inflation
The Intelligent Investor: A Century of Stock Market History
The Intelligent Investor: General Portfolio Policy for the Defensive Investor
The Intelligent Investor: The Defensive Investor and Common Stocks
The Intelligent Investor: A Negative Approach to Portfolio Policy for the Enterprising Investor
The Intelligent Investor: The Positive Side to Portfolio Policy for the Enterprising Investor
The Intelligent Investor: The Investor and Market Fluctuations
The Intelligent Investor: Investing in Investment Funds
The Intelligent Investor: The Investor and His Advisers
The Intelligent Investor: A General Approach to Security Analysis for the Lay Investor
The Intelligent Investor: Things to Consider About Per-Share Earnings
The Intelligent Investor: A Comparison of Four Listed Companies
The Intelligent Investor: A Comparison of Four Listed Companies
These are notes from:
The Simple Dollar
Subscribe to:
Posts (Atom)