Secret To Your Financial Success Is Inside Yourself
Thursday, April 28, 2011, 2:00 AM | Leave Comment
I was looking for some information using my favorite search engine, when by chance I came across the name Benjamin Graham. I started reading about him and the more I read, the more I got interested. Apparently Graham was an investor and investing mentor of such notable investors as Warren Buffett.
Graham is generally considered the father of security analysis and value investing.
I present to you Benjamin Graham’s basic principles of investing. You can do more research on your own if you want. Graham’s main motto for investing was Secret To Your Financial Success Is Inside Yourself.
How your investments behave is less important than how you behave
Like I mentioned above Graham’s main motto was that the secret of financial success is inside yourself.
If you become a critical thinker who takes no Wall Street facts on faith, and you invest with patience and confidence, you can take steady advantage of even the worst bear market.
By developing your discipline and courage, you can refuse to let other people’s mood-swings govern your financial destiny.
[You can watch CNBC all day long but you don’t have to believe and follow what the hosts say.]
In the end, how your investments behave is much less important than how you behave.
Most investors take different approach
Most investors trade in the market. What they do is follow charts and other mechanical means of determining the right moments of buy and sell.
They end up buying when a stock or the market has gone up and sell when it has declined.
This is exact opposite of sound business sense everywhere else, and it is most unlikely that it can lead to lasting success on Wall Street.
Here are some important points you may consider in investing your hard-earned money.
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Always invest with a Margin of Safety
Margin of safety is the principle of buying a security at a significant discount to its intrinsic value, which is thought to not only provide high-return opportunities but also to minimize the downside risk of an investment.
In simple terms, Graham’s goal was to buy assets worth $1 for 50 cents.
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Expect volatility and profit from it
Investing in stocks means dealing with volatility. Instead of running for the exits during times of market stress, the smart investor greets downturns as chances to find great investments.
That means, in general, not to panic and mostly stay put and follow the two strategies that Graham suggested to help mitigate the negative effects of market volatility:
- Dollar-cost averaging
This is achieved by buying equal dollar amounts of investments at regular intervals. It takes advantage of dips in the price and means that investors don’t have to be concerned about buying their entire position at the top of the market. - Investing in stocks and bonds
Graham recommended distributing one’s portfolio evenly between stocks and bonds as a way to preserve capital in market downturns while still achieving growth of capital through bond income.
- Dollar-cost averaging
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Know what kind of investor you are
Graham said investors should know their investment selves. To illustrate this, he made clear distinctions among various groups operating in the stock market.
- Active vs. passive
Graham referred to active and passive investors as enterprising investors and defensive investors. - Speculator vs. investor
Graham believed that it was critical for people to determine whether they were investors or speculators. An investor looks at a stock as part of a business and the stockholder as the owner of the business, while the speculator views himself as playing with expensive pieces of paper with no intrinsic value.
- Active vs. passive
In a Nutshell
It is said by many that Graham’s basic ideas are timeless and essential for long-term success.
He bought into the notion of buying stocks based on the underlying value of a business and turned it into a science at a time when almost all investors viewed stocks as speculative.
If you are interested, do some more research on your own. Maybe your financial adviser would know more about Graham’s principles. You can read the book written by him to know more about safe investing.
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