Tough week. Everything I read about bear markets seems to be coming true. It is one thing to read about how investors rush to the same exit and its another thing to actually experience it. Is it time to sell! sell! sell! or time to buy! buy! buy!?
To keep from falling under the same frame of mind, I have decided to reinforce the idea that right now is the time to be patient, look for opportunities and not panic. To keep busy, I am re-reading the contrarian investing bible. The book might have collected a little dust, but the information is in a league of its own.
A common question among value investors is whether The Intelligent Investor and Security Analysis are worth reading? This question stems from the idea that both books have the perception of being “dated” and thus the information is irrelevant. Many of the companies mentioned in both books might not exist today, but the content on investments and investor behavior are relevant today as when they were first written. In fact, its scary to see how not much has changed in terms of Mr.Market and his wild mood swings. Since I do not have time to re-read The Intelligent Investor, I have spent my time reading the two most important chapters in value investing, Chapters 8 and 20 of The Intelligent Investor.
What Warren Buffett has to say about the two chapters:
“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.” -Warren Buffett
Chapter 8 – The Investor and Market Fluctuations
“Every investor who owns common stocks must expect to see them fluctuate in value over the years”- p.195
“If he is the right kind of investor he will take added satisfaction from the thought that his operations are exactly opposite from those of the crowd” p.197 (early signs of contrarian investing)
“The investor who permits himself to be stampeded or unduly worried by unjustified market declines in his holdings is perversely transforming his basic advantage into a basic disadvantage.That man, would be better off if his stocks had no market quotation at all, for he would then be spared the mental anguish caused him by other person’s mistakes of judgment.”- p. 203
“Let us close this section with something in the nature of parable. Imagine that in some private business you own a small shares that cost you $1,00. One of your partners, named Mr. Market, is very obliging indeed. Every day he tells you what he thinks your interest is worth and furthermore offers either to buy you out or to sell you an additional interest on that basis. Sometimes his idea of value appears plausible and justified by business developments and prospects as you know them. Often, on the other hand, Mr. Market lets his enthusiasm or his fears run away with him, and the value he proposes seems to you a little short of silly.” -p 205
Chapter 20- “Margin of Safety” as the Central Concept of Investment
” We say that to have a true investment there must be present a true margin of safety. And a true margin of safety is one that can be demonstrated by figures, by persuasive reasoning, and by reference to a body of actual experience” p.520
“Investment is most intelligent when it is most businesslike“- p.523
“To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks.”- p.524
Obviously, the quotes above are only a small sample of the brilliance of Graham’s writings. I could easily pull 20 quotes from each chapter. I highly suggest re-reading the two chapters to see how relevant the information is today as they were back when Benjamin Graham wrote them.Finally, the above page numbers are from Jason Zweig’s edition of The Intelligent Investor.
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