Benjamin Graham, the stock market investor and economist, was the only investing legend who ignored the subjective aspects of equity analysis.
Graham was never interested in meeting managements and knowing what they were capable of doing or not doing. All he saw and studied were hard core numbers -the Balance Sheet. He wanted to buy cheap and under valued assets. Graham had also always stressed the diversification mantra. He professed that investors should buy companies when the current situation is unfavourable, the near-term prospects poor and the low price fully reflects the current pessimism.
Graham advised investors to keep their equity exposure within 75 per cent of their net assets. For the more adventurous investors, a 100 per cent exposure to equity could be considered in case the investor met the following guidelines:
Keep enough cash to take care of 12 months of your family expenses.
Do not panic and sell stocks but actually buy more stocks of solid stable companies as prices continued to slide during the bear markets.
You understand and are able to differentiate between hope and hype.
Below are his few quotable quotes:
“While enthusiasm may be necessary for great accomplishments elsewhere, on Wall Street it almost invariably leads to disaster.”
“The fact that other people agree or disagree with you makes you neither right nor wrong. You will be right if your facts and your reasoning are correct.”
“Confronted with the challenge to distil the secret of sound investment into three words, we venture the motto, Margin of Safety.”
“Many sceptics, it is true, are inclined to dismiss the whole procedure (chart reading) as akin to astrology or necromancy; but the sheer weight of its importance in Wall Street requires that its pretensions be examined with some degree of care.”
“Individuals who cannot master their emotions are ill-suited to profit from the investment process.”
“Most of the time common stocks are subject to irrational and excessive price fluctuations in both directions as the consequence of the ingrained tendency of most people to speculate or gamble… to give way to hope, fear and greed.”
“The chief losses to investors come from the purchase of low-quality securities at times of favourable business conditions.”
“The individual investor should act consistently as an investor and not as a speculator. This means…that he should be able to justify every purchase he makes and each price he pays by impersonal, objective reasoning that satisfies him that he is getting more than his money’s worth for his purchase.”