3 Investing Principles That Are Here To Stay

Without a doubt, Warren Buffet will go down as one of the greatest investors of all time. However, if you ask him as to who are worthy contenders to his title, one of the names that would come up is that of Benjamin Graham – considered to be father of security analysis and value investing.

So, here are 3 of his investing Principles that have stood the test of time:

#1: Know What Type of Investor You Are

Simply put, Graham was of the opinion that investors should seek to know themselves first. He classified investors into two groups: defensive and enterprising investors.

By definition, the enterprising investor was willing to not only spend time and efforts to become good investors but also understood the relationship between the quality and amount of hands-on research and handsome returns.

The other type of investor was short or time or an inclination towards investing, and according to him, would have to be content with lower returns.

#2: Always Invest with a Margin of Safety

This principle contributed greatly to Graham’s success as an investor and was very simply being able to buy a security at an amount much lesser than its intrinsic value. In other, he advocated and practiced buying a dollar’s worth of assets for 50 cents.

The advantage of such an approach meant that high-return opportunities were possible but in the situation where things didn’t go the way they were supposed to go, the risk would be minimal. As Graham discovered, carefully undervalued stocks rarely declined further.

#3: Profit from Volatility

If you’re investing in the stock market, it is important to expect volatility. But more importantly, knowing how to deal with it can bring returns either by obtaining bargains or selling your holding when they were overvalued.

He was a firm believer of the fact that one must not be swayed by market opinion but must make decisions to buy or sell by examining the facts thoroughly and rationally.

Among the several tips that he offers, dollar-cost averaging and the distribution of portfolios between stocks and bonds were the best way to preserve capital during times of volatility.