Making the Fluctuations Pay

Warren Buffett has continuously given credit for his approach to stock investing to his mentor and friend, Ben Graham. To be more specific, Buffett points to Graham’s The Intelligent Investor, the book Buffett read in 1950, when he was 19-years old. And for more than 50 years, Buffett’s approach hasn’t changed.

When Buffett wrote the preface to the 4 th edition (1973), he said,If you follow the behavioral and business principles that Graham advocates—and if you pay special attention to the invaluable advice in Chapters 8 and 20—you will not get a poor result from your investments. (That represents more of an accomplishment than you might think.)

I find myself reading Chapter 8 (“The Investor and Market Fluctuations”) and Chapter 20 (“‘Margin of Safety’ as the Central Concept of Investment”) several times a year. In Chapter 8, Graham introduces the reader to his famous “Mr. Market” metaphor to explain how and why stock prices fluctuate. More than 50 years later, there is no better way of understanding how stocks are priced than by using Graham’s Mr. Market.

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