People often mistakenly take investment as speculation and speculation as investment. This is a very dangerous mistake. So people who want to invest money in stock market or who are investing should know clear distinction between both.
The father of value investing Ben Graham has given very precise definition of investment in his much popular book “Security Analysis”. This definition helps investors to spot the difference between investment and speculation. It reads, “An investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return. Operations not meeting these requirements are speculative." He says investment should be done based on sound fundamental analysis, investment should promise safety of prinicpal, and it should give adequate return. Now how much is adequate? over the long term, if average retun is more than average of (inflation + Fixed Deposit retun) then it can be considered adequate.
Graham also quoted, “in the short term, the stock market behaves like a voting machine, but in the long term it acts like a weighing machine”. So he is suggesting investor to regard shares as ownership in business and should not concern about short term fluctuation of market. Here I want to give you one more quote which from warren buffet and he argued that this is most important word ever written in investment world, “investment is more intelligent when it is most business-like”.
Showing posts with label investment. Show all posts
Showing posts with label investment. Show all posts
8 Tips to Investing Successfully
Charlie Munger is a co-chairman of berkshire hathway. It is widely known that he influenced buffet's style of investing. He is also very well known for introducing "latticework of mental models" concept in investing, I consider this concept a best gift from Mr Munger. It is very much useful in investing and also equally useful in general life . I will write separate article on "latticework of mental models" in future.
For successful investing you have to be patiance, disciplined investor. As they say, investment is never risky, but it is investor who is risky. Here I have listed total 8 investment tenets from Mr. Munger.
1. Risk: measure it, avoid it if possible, have a margin of safety, and limit downside.
2. Independence: don't follow the herd, the herd will only do average.
3. Preparation: learning, building mental models, and continual improvement.
4. Humility: acknowledge what you don't know, don't be overconfident, stay within your circle of competence, and watch for errors.
5. Analytic rigor: calculate value before looking at price, and be a business analyst and not a securities analyst.
6. Allocation: consider opportunity costs.
7. Patience: Wait for the right opportunities.
8. Decisiveness: great ideas are rare, so bet big when they come along and when you have confidence in them.
Happy Investing.
For successful investing you have to be patiance, disciplined investor. As they say, investment is never risky, but it is investor who is risky. Here I have listed total 8 investment tenets from Mr. Munger.
1. Risk: measure it, avoid it if possible, have a margin of safety, and limit downside.
2. Independence: don't follow the herd, the herd will only do average.
3. Preparation: learning, building mental models, and continual improvement.
4. Humility: acknowledge what you don't know, don't be overconfident, stay within your circle of competence, and watch for errors.
5. Analytic rigor: calculate value before looking at price, and be a business analyst and not a securities analyst.
6. Allocation: consider opportunity costs.
7. Patience: Wait for the right opportunities.
8. Decisiveness: great ideas are rare, so bet big when they come along and when you have confidence in them.
Happy Investing.
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