Timeless Investment Principles - Benjamin Graham

Benjamin Graham is said to be the Father of Value Investment. I think, not matter what you are investing in, wither they be stocks, ETFs, or silver and gold, these ideas apply to all.

He wrote two book to document his ideas and methods on investing: "Security Analysis" (1934) and "The Intelligent Investor" (1949), which are two of the most famous investment books ever written. Warren Buffet was also a follower of these principles, look where that got him, multiple billions in wealth. These gooks are considered a must read for any investor, but they aren't easy to follow and take a lot of concentration.

Principle #1: Always Invest with a Margin of Safety

Margin of safety is the principle of buying an investment at a large discount to its intrinsic value, which will provide the investor high-percentage-return opportunities, but also to minimize any downside risk of that investment. In simple terms, Graham's goal would be to buy an asset that is worth a $1 for 50 cents. He did this all too well, and he did it his entire lifetime.

This concept is very important, as value investing can provide the investor with substantial profits once the market eventually realizes the fair market value of the investment, does precious metals come to mind? It also provides protection on the downside, since buying at large discounts, a small downturn will not scare the investor out of the trade.

Principle #2: Expect Volatility and Profit From It

When investing, you need to deal with volatility. Instead of selling during market downturns, the smart investor will see downturns as a chance to find great investments. Investors will see a daily price quote in which you either buy or sell based on perceived value.

Because the general stock market has these same trends and emotions, meaning you should not trade based on emotion, if you already have a plan in place. You should invest based on your own value based system based on sound and rational review of all the facts.

You should only buy when the market price fits your strategy, and sell when the price becomes too high, such as BTC at $19,000. Market will fluctuate to crazy levels, but rather than fearing volatile markets, you should use it to your advantage to get awesome values in a down market or sell it all when your investments become way to overvalued.

Here are two strategies that Graham used to help balance out the negative effects of market volatility:

Dollar-Cost Averaging

Buying equal dollar amounts into an investment at regular intervals. Takes advantage of drops in the price, buying mare units when prices are low and fewer shares when prices are higher. Balances out concerns spending your entire position at the top of the market.

As I post two days back.
https://steemit.com/steemsilvergold/@rollingthunder/dollar-steer-cost-averaging-explained-kiss-principle

Principle #3: Know What Kind of Investor You Are

B. Graham preached to his followers to understand their investment traits prior to getting into any trade.

Active vs. Passive Investors

Graham referred to being an active or passive investor, either as "enterprising investors" and "defensive investors." You only have two real choices:
First choice is to make a commitment in time and energy to become a great investor in hands-on research with the expected high return. To be passive, possibly lower return, but with much less time and work into your education. Graham would relate "risk = return". To him, "work = return." The more work and education you put into your investments, the higher your rate of return should be.

An active investor will study a wide range of investments and choose based on risk/reward. A passive investor will buy an index fund and be quite happy.

Speculator Versus Investor

Not all people in making decisions in the markets are investors. Graham believed that is critical for individuals to determine whether they are investors or speculators. The difference is very simple: an investor looks at stock certificates as being a part of a business and the stockholder is the owner of that business. A speculator views the market as playing with expensive pieces of paper, with no intrinsic value, like FIAT currency. For the speculator, value will only be determined by what another investor is willing to pay for that asset.

To paraphrase Benjamin Graham, "there is intelligent speculating as well as intelligent investing; the key is to be sure you understand which you are good at."

Hope this educational lesson was entertaining and helpful.

Keep stacking. Go get you some.

Thanks for following @RollingThunder