“Do not take yearly results too seriously. Instead, focus on four or five-year averages.”
When you invest for the long term, what counts is how well the company will do over the years. Therefore, the latest earnings report may not matter as much (unless these are highly unusual news). What counts are the trends in sales, costs, and profits.
“Investing is a unique kind of casino—one where you cannot lose in the end, so long as you play only by the rules that put the odds squarely in your favor.”
For both investors and traders what counts is the risk vs. reward ratio. If you risk $1 for a realistic chance to gain $3, your risk vs. reward ratio is good. There are no guarantees, just probabilities. So get odds in your favor. If you hold multiple investments, some may not work out. But, the rest should if your ratio is in your favor. One of the ways to get it in your favor is to buy quality at a discount.
“Investment is most intelligent when it’s most businesslike.”
When you perform a thorough research and then decide to buy or sell, it looks like a business decision. If you trade based on emotions (the fear and greed factor) or on tips from unreliable sources, it is not a business decision- it is a whim, a gamble.
“In the short run, the market is a voting machine but in the long run, it is a weighing machine.”
In the short term, the market can underprice or overprice assets due to alternating investors’ pessimism and optimism. But, in the long term, it is about how well a business is doing. Eventually the stock price will catch up with business performance of a company.
“Investing isn’t about beating the others at their game. It’s about controlling yourself at your own game.”
“Individuals who cannot master their emotions are ill-suited to profit from the investment process.”
Too many investors treat investing as a gamble. Too many investors hope for a good outcome. The market doesn’t care about your hopes. But, the market will eventually catch up with fundamentals.
“High valuations entail high risks.”
“The margin of safety is always dependent on the price paid. It will be large at one price, small at some higher price, nonexistent at some still higher price.”
By chasing stocks, due to the fear of missing out, investors can end up buying at the peak. That’s risky since the stock is likely to trade at high multiples then, leaving a little to gain, but a lot to lose. That’s a bad risk vs. return bet.
“By refusing to pay too much for an investment, you minimize the chances that your wealth will ever disappear or suddenly be destroyed.”
If you buy at high valuation, the value of your investment can fall substantially during a sell-off. Then, you’re likely to get discouraged, or fearful of losing more, and end up selling low after buying high. Also, if you buy on a margin (loan from a broker), there’s a chance that you’ll be forced to sell due to a margin call. On the other hand, by buying quality stocks at a low price, and adding patience to it, success is likely to come.
“A great company is not a great investment if you pay too much for the stock.”
“Growth stocks are worth buying when their prices are reasonable.”
There are many great companies, but it doesn’t mean their stocks are good buys. The reason: the valuations are already too high. Growth stocks tend to have higher valuations than value stocks. And that’s okay. But, if you can buy quality growth stocks at a discount price (i.e., after a market panic), you’re more likely to succeed. There is no 100% guarantee, but odds are better. Get many quality stocks at low valuations and your chances for investing success will rise substantially.
“Thousands of people have tried, and the evidence is clear: The more you trade, the less you keep.”
More than 90% of amateur traders lose money. That is not to say trading is bad for everyone. But, if you trade for the short term rather than invest, you’ve got to learn the rules of that game. Great traders prepare for trades. They have entry and exit points and have the risk vs. reward ratio in their favor. They make high probability bets and avoid unnecessary trades.
“Never buy a stock because it has gone up or sell one because it has gone down.”
If your stock is up 100%, should you sell? Well, that depends. If its value is still attractive, consider keeping it, or selling a half of your position. On the other hand, what if your stock has gone down 50%? Perhaps it’s a good time to buy more, or time to cut your losses. A lot will depend on the reason for a rise or a fall as well as the current valuation.
“The best way to measure your investing success is not by whether you’re beating the market but by whether you’ve put in place a financial plan and a behavioral discipline that are likely to get you where you want to go.”
Everyone should have a long-term investing plan. At times, your investments may not perform well. So throw out your rotten apples if there’s a good reason, and keep the good stuff. What counts in the long run is if you’re on the right track to financial success.
“Before you place your financial future in the hands of an adviser, it’s imperative that you find someone who not only makes you comfortable but whose honesty is beyond reproach. “
“If fees consume more than 1% of your assets annually, you should probably shop for another adviser.”
Be careful about advisors and consider not relying on a single one. If you learn more about investing, then you’ll be better able to preserve whatever wealth you’ve acquired. Nowadays, investors are abandoning actively managed mutual funds in favor of passive index funds and ETFs. Many ETFs, indeed, charge less than 1% in annual fees.
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“It’ nonsensical to derive a price/earnings ratio by dividing the known current price by unknown future earnings.”
There are trailing P/Es and forward P/Es. The former rely on past earnings, the latter on projected earnings. At times, P/Es can be useless. For example, a company has a high P/E because of a write-down one year, but the next year’s P/E is expected to be much better (lower). Investors should rely on many indicators in addition to P/Es in order to get a better picture of company’s performance and current valuation.
· Buy low and sell high: learn investment valuation to know the difference between what is low and what is high
· Seek to buy quality assets below their true (intrinsic) values
· Master your emotions and treat investing as a business rather than a gamble
· Keep your investing costs low
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When it comes to Benjamin Graham, two words come to mind: value investing. He advocated buying assets below their intrinsic values, which creates a margin of safety and a potential for large returns.
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Graham advocated buying quality at a discount. It requires patience.
Mr. Graham passed away in 1976, but his views on investing continue to influence many investors. Among his disciples is Warren Buffet. Below we present some of Benjamin Graham’s best investing quotes as well as our commentary.
“The intelligent investor is a realist who sells to optimists and buys from pessimists.”
“Buy cheap and sell dear.”
Optimists buy high, pessimists sell low, while realists get assets at a discount. Graham is among the first ones to write comprehensive investment analysis books, which showed how to determine what is low and what is high with fundamental analysis. He often referred to the concept of a “margin of safety.” If you buy low enough, the stock price will be below its intrinsic value (the value of a business) so the risk will be low, and strong capital gains can be made once there’s recovery. On the other hand, holding an overpriced asset is risky- it can decline substantially from its peak.