Data and Investment Consult

Investment in finance means the purchase of financial product with an expectation of favorable future returns. In simple terms, investment means the use of money in an expectation of making more money. Warren Buffett is generally regarded as one of the greatest investors of all time, but according to him the greatest investor is Benjamin Graham, his teacher.

Graham was an investing mentor and investor, who is widely considered to be the father of value investing and security analysis.

The three timeless investment principles are –

• 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 (value of a security, which is intrinsic or contained in the security itself). This not only provides high-return opportunities, but also minimizes the downside risk of an investment. In general terms, Benjamin Graham’s goal was to purchase assets value $1 for $0.50. He did this very magnificently. This concept is significant for investors, as it provides protection on the downside if the business falters and things don't work out as planned. It also provides significant profits once the market certainly re-evaluates the stock.

• Expect Volatility and Profit from It – Investing in stocks means dealing with unpredictability (volatility).The smart investor meets downturns as chances to find great investments,rather than running for the exits during the bad economic times or market stress.Graham exemplified this with the resemblance (analogy) of ‘Mr.Market’, an invented business partner of investors. Mr. Market suggests investors a daily price quote at which he would either sell his share or buy an investor out of the business.

Graham suggested two strategies for moderating the negative impacts of market volatility –

1. Investing in Bonds and Stocks – He suggested sharing out one’s portfolio equally between bonds and stocks as a means to protect capital in bad economic times (or market downturns), while still accomplishing increase of capital through bond income. He recommended 25% to 75% of your investments in bond, and varying this based on the present market condition.
2. Dollar – Cost Averaging – It is accomplished by purchasing equal dollar amounts of investments at regular periods. It is perfect for passive investors (defensive investors) and alleviates them of the liability of choosing when and at what price to acquire their positions.

• Know What Kind of Investor You Are – Graham recommended that investors must know their investment themselves.

1. Speculator Vs. Investors – All the people in the stock market are not investors. He believed that it was vital for many people to determine whether they were speculators or investors. The difference is simple:
   • Speculator views himself as playing with expensive pieces of paper, but with no intrinsic value.
   • Investor looks at a stock as part of business and the stockholder as the owner of the business.
2. Active Vs. Passive – Graham referred active investors as enterprising investors and passive investors as defensive investors. Active investor makes a serious dedication in energy and time, who equates the amount and quality of hands-on research with the expected return. While, the passive investor would be an investor in index funds of both bonds and stocks. Fundamentally, they own the entire market and get benefits from those areas that perform the best without predicting those areas in an advance.