Author: Benjamin Graham, Jason Zweig
The Intelligent Investor: The Definitive Book on Value Investing. A Book of Practical Counsel Benjamin Graham, Jason Zweig 2006
Authors: Benjamin Graham, Jason Zweig
Two Investment Tactics (The Intelligent Investor)
Who is an investor
The Intelligent Investor: An investor is a person whose goal is to invest in assets, keep the invested money, and receive not super high, but stable and acceptable profit under certain conditions. This goal is achieved not through luck, excitement, or trust in the market, but through careful analysis of the financial situation. Anything that does not comply with these conditions falls under the category of speculation.
If you bought NN bonds for $10,000 and intend to hold them to maturity, you are making an investment. If you buy shares of NN for $10,000 to sell for $11,000 tomorrow, that is speculation.The Intelligent Investor
Given the current state of the market, a certain amount of speculation is inherent in the behavior of any investor. However, a reasonable investor allows no more than 10% of assets to speculative operations and in no case keeps this money in the same account as the money for investments.
The reasonable behavior of the investor is not directly related to the value of IQ. A reasonable investor is first and foremost a patient investor, a person who controls his emotions, and this property is more of a character than an intellect.
In 1720, Isaac Newton became a shareholder in the South Sea Company, whose shares sold like hot cakes. Seeing that the situation on the stock market was getting out of control, the scientist said that it was easier for him to predict the course of the planets than the behavior of madmen, and got rid of his shares, making a profit of 100% (7 thousand pounds). A month later, he could not stand it and succumbed to the general financial fever, buying the same shares more expensive – and losing 20 thousand pounds ($ 3 million by today’s standards). A great mathematician does not mean a great investor.The Intelligent Investor
A sensible investor does not allow himself to be carried away by the tempting advertisement of quick profit. He does not monitor the growth of shares, but the state of the company to which these shares belong. Unlike a speculator, he does not overpay for shares, tempted by their sharp rise or fall, because he knows how to calculate their real price. He just needs to choose one of the paths:
- create a portfolio that does not require time and effort to manage and brings an acceptable stable income (the path of a passive investor);
- create a portfolio with a changing set of stocks and bonds, while constantly monitoring their dynamics and counting on above-average returns (the way of an active investor).
One path is not worse than the other – it all depends on your temperament.
Passive investor tactics
The passive investor is on the defensive. It is important for him to save investments and avoid all sorts of difficulties associated with investment management. Its main principle is to always invest part of the funds in bonds and monetary assets, and part in stocks. This ratio ranges from 50: 50 to 25: 75 depending on the market situation. A share of 75% means a serious risk; if the investor is not at all interested in risk, he can limit the share of shares to 25%. Portfolio rebalancing in accordance with the established proportion should be neither too frequent nor too rare – say, once every six months. This proportion can be violated only in the event of major life changes.
You should never buy a stock just because it’s going up and sell it just because it’s going down. The main thing is your internal discipline, not market hysteria.The Intelligent Investor
When choosing stocks for an investment portfolio 1, a passive investor should adhere to the following rules:
- maintain optimal portfolio diversification by including stocks of 10–30 companies;
- include in the portfolio only shares of large successful companies with a conservative financing policy;
Graham warns passive investors against small companies whose business cannot withstand various adverse factors. Zweig elaborates that in the 21st century, it is possible for a passive investor to own shares of small companies indirectly, through mutual funds that specialize in investing in shares of small companies.The Intelligent Investor
- current assets of companies should be at least twice the current liabilities, and long-term liabilities should not exceed the amount of working capital;
- the company should not have suffered losses over the past 10 years, and its earnings per share over the past 10 years should have increased by at least 1/3;
Since 33% cumulative growth over 10 years implies only 3% CAGR, the author proposes another criterion – a cumulative growth in earnings per share of at least 50%, i.e. 4% per year.The Intelligent Investor
- the company must pay dividends for at least 20 years;
- the current share price should not exceed the average value of profit for the last three years by more than 15 times (price/earnings ratio);
- the current share price should not exceed its book value presented in the last report by more than 1.5 times (price/book value ratio). However, an earnings multiple below 15 justifies a higher book value multiple. The product of these coefficients should not exceed 22.5.
Why not bring the share of shares in the portfolio to 100%? Some investors can afford it, but there are conditions:The Intelligent Investor
1) they have enough off-market savings for personal needs for at least a year;
2) they are going to continuously invest for at least the next 20 years;
3) they survived the 2000 bear market and did not sell shares 2 ;
4) they stick to a consistent investment plan, relying on their own discipline and not on the whims of the market.
Anyone who does not meet at least one of these requirements should not invest all their money in stocks.The Intelligent Investor
Choosing bonds, the investor, depending on personal preferences, choose between short-term and long-term bonds. Of course, there are many classes of bonds, but their duration is one of the most important criteria.
He can buy them himself or through a mutual fund that includes dozens of bonds, which reduces the risk.
- When buying government savings bonds, you should keep in mind that they are not traded on the market, but are considered very reliably (for an investor with modest funds, this is often the best choice).
- When placing a bet on high-yield bonds, one should, on the contrary, be careful: for a higher yield, the investor pays with a greater risk, such as a fall in the market prices of these securities or an issuer default 3.
- Preferred shares 4 remain the most inefficient investment instrument among securities: they are less reliable than bonds (in the event of the issuer’s bankruptcy, the investor loses the priority right to the company’s assets), their potential return is lower than the return on ordinary shares. In general, if a company is willing to pay high dividends on preferred stock instead of issuing bonds and thus enjoying tax benefits, this is a bad sign: the company is not doing very well.
A passive investor should focus not on individual stocks, even if they promise quick profits, but on diversifying the investment portfolio. A popular argument against diversification is that it reduces the possibility of high returns. Indeed, seeing the success of Microsoft or Apple, isn’t it tempting to put all your eggs in one basket on the stock of a promising corporation? But not a single broker will give an absolutely accurate forecast about the next future of Microsoft. There is no guarantee that the shares of a successful company will continue to rise after you buy them. Investing in stocks of different companies in different industries is the only way to both avoid serious risks and increase the chances of success (after all, in the long run, some groups of stocks will definitely come out ahead).
Preferred shares are shares that do not provide for the investor’s voting rights, but provide for the right to a fixed income. The owners of ordinary shares have the right to vote at meetings of shareholders, but the amount of their dividends depends on the current income of the issuing company. Diversification is reinforced by the method of average uniform investment, when the investor regularly invests the same amount in the purchase of shares, regardless of stock market fluctuations. Thus, the investor does not get involved in the general pursuit of “better” stocks, but simply buys more in a falling market and less in a rising one. The best way to implement such a strategy is to build a portfolio of shares of index funds 5 that work with all major stocks and bonds. Figuratively speaking, instead of looking for a needle in a haystack (the most profitable stocks), you buy the whole haystack at once (through an investment fund that covers the entire stock market). Your portfolio is now managed on autopilot. This tactic is all the more profitable if your investment horizon is at least 20–25 years.
Graham recommends spending 90% of the assets on the purchase of shares of the index fund, the remaining 10% on self-selected stocks.The Intelligent Investor
Is a passive investor who has chosen such a strategy free from risk – a constant companion of the stock market? The market value of shares can fluctuate greatly, but if their returns have been high enough for a long time, such behavior of shares cannot be called risk. Stocks are considered risky when their purchase price is too high compared to the true value (even if the market fall is won back in the future).
Active investor tactics
The activity of an active investor also begins with the distribution of assets between high-quality bonds and stocks. However, an active investor, unlike a passive one, expects higher profits, and therefore can invest in different types of securities.
In search of benefits, he needs to be careful with:
- High yield junk bonds. They are issued by companies with a low investment rating to raise funds for a short period, sometimes when acquiring other companies.
- foreign government bonds. The risk here goes hand in hand with the benefit: on the one hand, in the event of some political problems, the investor will not have full rights to the purchased securities, on the other hand, bonds of developing countries do not always depend on the securities market of your country, so in the difficult moment can play the role of an airbag. Zweig believes that it is quite reasonable to invest up to a third of the assets in the shares of a mutual investment fund that works with foreign papers. But you should not invest in funds whose operating costs per year are more than 1.25% of the value of assets.
- Buying shares during an IPO 6. At first glance, this operation is very profitable, because there are examples: those who once bought Apple shares did not know grief later. Being guided by such logic is like being confident in your abilities as a fairy tale writer, “because Rowling did it.” Alas, most IPOs did not share the brilliant fate of Apple. In addition, most of the profits from any IPO are received by members of the “closed club” – large funds that purchase shares at the subscription price (original price) even before they become available to retail investors.
It doesn’t matter if other investors want to buy some shares – you should only buy them if the shares, at a low cost, allow you to become an owner of a stake in the business of interest to you. And in this case, it is much more relevant to be interested not in the question of the value of shares, but in the question of the value of the business: is it unprofitable?The Intelligent Investor
- “Growth Stocks”. These are stocks of companies that have demonstrated strong financial performance in the past and are likely to demonstrate them in the future. Efforts aimed at building a portfolio exclusively from such stocks, as a rule, do not justify profitability: the alone investors will never outperform specialized investment companies here. Growth stocks should only be bought if their price is reasonable, for example, when the company is going through hard times and its status in the market is declining (we will talk about the criteria for a reasonable price below).
- 7 warrants and convertible securities. With regard to warrants, Graham is radical: huge issues of these securities have no purpose other than creating illusory market value for companies, and there is no need to expect benefits here. With convertible bonds, it’s more complicated: you can earn interest or exchange it for the company’s common stock, and if the stock price rises, convertible bonds will perform better than regular bonds. But convertible bonds have a maturity date, so it is not always possible to wait for favorable conditions for the conversion. In addition, when new convertibles are issued, there is a dilution of existing shares and an actual decrease in earnings per share. A suitable option for an investor would be a well-backed issue of bonds convertible into attractive shares of common stock in their own right, and at a price only slightly above current market prices. Such bonds are found, but you should not trust this type of security too much.
The best strategy for the active investor is not to rely on clever investment tools, but to diversify the entire portfolio wisely, including a variety of securities, and remember the advantage of average even investment.The Intelligent Investor
Only a strategy that is as well thought out as it is unpopular among stock market participants can give chances for higher profits. Active investors should pay attention to:
- Relatively little-known large companies: their resources will allow them to overcome a possible crisis (small companies cannot give such a guarantee), and if their financial condition improves, the market will react quickly. However, due to significant fluctuations in earnings, the shares of such companies trade at relatively high prices in good years, and at low prices in bad years. This can be avoided by choosing stocks based on average earnings for a certain period in the past.
- “Beneficial” securities are those whose market price is undervalued compared to their fair value (by at least 50%). There are two ways to identify such shares: either by evaluating them on the basis of expected profit (it is multiplied by the coefficient corresponding to a particular issue of shares, and if the resulting product is much higher than the market price of the shares, the share is considered “profitable”) or by evaluating the value of the company in terms of private ownership, also based on the expected profit (in this case, you need to pay more attention to the fair market value of the company’s assets, primarily working capital).
The reason for the possible undervaluation of shares is the low current financial performance of the company. The investor must make sure that the profits that the company has been making over the past 10 years are stable, and that its financial capabilities are sufficient to withstand possible crises. Shares are “worthwhile” if their combined price does not exceed net working capital less all liabilities.The Intelligent Investor
- Profitable shares of second-tier companies. The stock market is not always objective to companies that have not become industry leaders or have remained leaders in secondary industries. However, the profit from the purchase of shares of such companies is not at all excluded:
1) their dividend yield is relatively high;
2) high and reinvested profit compared to the price of shares (in the future, this will affect their value);
3) when the market rises, the prices for such shares reach an acceptable level (however, they will reach it even under relatively unfavorable market conditions simply due to the constant process of price adjustment);
4) the share price may rise if it was due to specific corporate factors that were eliminated over time.
- “Special cases” occur when small companies are taken over by larger ones or are involved in litigation (prejudice in the stock market against the securities of such companies provokes a fall in their prices). Thus, the shares of Johnson & Johnson fell by 16% in just a day – after in July 2002 which was announced the start of a trial in connection with the falsification of reporting at one of the pharmaceutical plants. Entrepreneurial investors were able to buy shares of a successful large company cheaply, providing themselves with good returns in the long run. However, investing in these “special cases” requires training and experience.
Before you start investing, it makes sense to practice – spend about a year tracking stocks without buying them. If in a year the imaginary portfolio turns out to be unprofitable, then you should not waste time on self-selection of stocks and simply invest in an index fund. As with the passive investor, Graham’s advice is to spend no more than 10% of your assets on self-picking stocks.
There are as many ways to look for profitable stocks as there are investors, but the best investors are interested in a company not when its shares are rising, but when they are falling. Thus, Mason Hawkins 8 likes to look for “60 cent dollars” – companies whose shares are worth no more than 60% of the real value of the business. Robert Rodriguez 9 always pays attention to employee turnover in the company he is interested in: if it continues for too long, this indicates corporate problems. Warren Buffett is 10 companies with a strong brand, a clear business, a stable financial foundation and a monopoly position in their market are interesting – like Coca-Cola. It is worth paying attention to which of the well-known investment managers hold the same shares as you. What other stocks do they include in their portfolios? What do these promotions have in common? How do managers themselves comment on their investment strategy?The Intelligent Investor
Investors and other players
Describing the life of the stock market, Graham draws the image of a nervous gentleman who every morning knocks on the investor’s door and plays a whole spectacle: either unreasonably happy with high quotes or falling into despondency – and always pulling the investor’s sleeve, hurrying to buy or sell. He is ready to overpay for growth stocks, and he is ready to sell falling stocks immediately, and below the true price. And pricing in the stock market is truly paradoxical. The higher the company’s reputation, the weaker its share price is tied to its book value. The greater the difference between a share’s price and its book value, the less the share’s price is based on the intrinsic value of the company and the more on the whims of the stock market. The more successful a company is, the more its stock fluctuates!
The character of Mr. Market has not changed for decades. It is dangerous to project his current moods into the future. Those who are most mistaken are those who believe that they can predict the future returns of securities (this is impossible with respect to either stocks or bonds). The verbal stream of Mr. Market should be listened to only in those moments when it suits your own interests. Focus on price tracking based on company book value 11(the price of the shares should not exceed it by more than a third: if the price is lower, the shares should be bought; if the price is higher, they should be sold). A price close to book value is not the only indicator for an investor (both the price-to-earnings ratio, discussed above, and the company’s financial position, as discussed below, are important). But this benchmark allows you to ignore the whims of the market, using a good moment only to buy shares at the right price and hold them. So, Mr. Market only names the price, and it is up to the investor to buy/sell at it or not.
It is not market quotes that deserve the main attention, but dividends and the performance of companies whose shares you own.The Intelligent Investor
Investment funds are intermediaries that allow investors not to conduct operations on the stock market directly. Finding an investment fund that returns an order of magnitude higher than the investment industry as a whole is apparently impossible, but it is possible to find a fund that has shown good results over a fairly long period. Such a fund is useful even when its return is below the market average: it helps to diversify assets, frees you from the need to choose stocks or bonds on your own, relieves the temptation to speculate in the stock market (although no one guarantees the future high return of the chosen fund – the more successful it becomes, the more conservative its managers are, the more they succumb to popular stock market decisions).
An index fund that forms a portfolio according to a particular stock index (Moscow Exchange index, S&P 500, etc.) is more profitable in the long run than other investment funds: there are no “best” stocks or bonds for it – it simply buys securities of companies indicated in the index. By owning shares of such a fund for decades and regularly investing some amount in them, you can confidently outperform most investors.
Signs of a successful fund:
- its managers are often large investors themselves, in which case they better understand the interests of ordinary investors;
- the costs of successful funds are low (high commissions are by no means a guarantee of high returns!);
- successful funds avoid herd mentality by developing their own investment strategy, regardless of where it is customary to invest money in other funds;
- Successive funds do not like high-profile advertising and are often closed to new investors – this helps to avoid excessive accumulation of assets, and also speaks in favor of the honesty of the fund owners.
Most investment fund investors, first of all, study their profitability, then the manager’s reputation, then the riskiness of the fund’s operations, and the level of costs. A sensible investor also takes into account all this – but in reverse order, starting with costs.
An investor should withdraw money if:
- the fund changes its strategy dramatically;
- the fund’s costs continue to rise;
- the volume and frequency of tax payments are growing;
- Fund returns fluctuate dramatically.
They have no shortage. But when turning to outsiders for help, a prudent investor must either know his advisers very well or limit himself to standard investment methods – and in any case, rely on his own experience.
- Investment consultants, consulting departments of banks. They are careful not to make unrealistic promises, invest client funds in standard securities, use standard investment strategies, and not seek to profit from stock market fluctuations.
- Financial agencies are focused on working with those who are either engaged in the investment business themselves or advise other investors. They have a tactic that goes against Graham’s principles of buying a company’s stock on a favorable short-term outlook and selling on an unfavorable one, regardless of the current price. The issue of revaluation or undervaluation of shares from the point of view of the company’s long-term prospects does not concern financial agencies.
- Broker offices. The main source of information for the American investor – and, moreover, with a difficult reputation, because in the past, Wall Street brokerage houses made money on speculation in securities. Choosing a broker requires maximum reinsurance.
- Investment banks are very respected members of the financial community because their business is connected with the subscription and sale of new issues of securities. A prudent investor will not ignore the advice of a reputable investment bank, but he will not blindly follow his judgment either.
How to understand that you need the help of consultants?
1) you incur serious losses;
2) you do not control costs;
3) the investment portfolio is unbalanced: the investments included in it acquire or lose value at the same time;
4) you have thought about big life goals (to save money for the education of children, to take care of income in retirement).
How do you know if a consultant can be trusted?
- Ask him questions (Where did he study? His work experience? Qualifications? Does this advisor only advise in the field of asset management or is he also competent in real estate and insurance? What kind of advice do clients usually turn to him for? What investment approach does he consider optimal?).
- A good consultant is passionate and asks questions (Why do you think you need a consultant? What are your biggest financial fears? What are your long-term goals? What percentage of your income do you spend per year?).
- Beware of categorical statements such as “This chance happens once in a lifetime”, and “You simply have to buy these papers.”
The consultant manages not your money, but your emotions, to the manifestation of which during the exchange leapfrog everyone is somehow prone to.
The tools that the consultant and investor develop together and as carefully as possible helps protect against excessive excitement:
- a financial plan detailing how you will earn, spend and invest your money;
- an investment policy statement stating your approach to investing;
- asset allocation plan.
investor and money
So how much to pay per share?
Any investor is concerned about questions: is he overpaying for a share? What is the price for it? How can you be sure that you are paying for real securities? The general principle is simple: if a speculator buys shares, counting on short-term price spikes, then the investor calculates the value of shares based on the fundamental valuation of the company. Several factors are important:
1. General long-term prospects of the company. Start by looking at the company’s annual reports for at least the last five years. What makes a company grow? What about profit? Has the company become addicted to the financial needle of external funding sources like loans? How stable has earnings growth been over the past 10 years? If the annual growth rate of pre-tax profit is 10% or 6-7% after-tax, the growth can be considered sustainable. Pay attention to the pros: a strong brand, monopoly position in the market, and unique intangible assets (like the secret formula of Coca-Cola).
2. Quality management. How enterprising are the managers who run the company? Is this company striving for leadership? If the managers of the company you are interested in receive multi-million dollar bonuses, is there a good reason for this?
3. Capital of the company. Again, all attention to the annual reports. Has there been a steady increase in operating income over the past 10 years? Remember Warren Buffett’s profit concept: net income plus depreciation minus the usual cost of capital. If the owner’s earnings per share have grown steadily over the past 10 years by an average of 6-7%, you can bet on the company. Examine the capital structure as well. What are the debt obligations of the company? Long-term debt should not exceed 50% of its total capital. Does the company pay fixed or variable interest on the long-term debt? What is the ratio of the company’s profit to its fixed payments?
If an investor calculates earnings per share based only on short-term earnings, then he may fall into one of the accounting traps (for example, a company may account for the costs of developing new equipment as “capital assets” and not as ordinary costs that should be deducted from earnings ).
Read the company’s financial documents from the end (it says everything that the company would like to disguise), do not miss the notes to the annual financial report. Terms like “deferred” or “restructured” and indications that a company has changed an accounting policy should alert. Compare the notes to the report you are interested in with similar notes to the reports of competing companies.The Intelligent Investor
The real income of a company can be calculated by replacing earnings per share with the return on invested capital.
The company’s shares are attractive if the return on investment is at least 10%, and if the company has effective management and a well-known brand, then 6-7%.
4. Dividend history. Regular dividend payments for 20 years or more are a good indicator. As a rule, if the amount of current dividends are small, then the future profit of the company will be low. And if the company does not pay dividends, it must have strong evidence that the reinvested earnings provide a significant increase in the profit of the share price.
Often companies resort to stock splits, increasing their number without changing the total value. This has nothing to do with the reinvestment of profits and is only aimed at reducing the market price of shares (well, investors, of course, do not become richer). Other companies practice paying dividends in the form of shares, which is the same as if the company paid the equivalent amount of money and then sold additional shares to shareholders for the same amount. This form of calculation has a tax advantage, in addition, the shareholder can count on dividends on an increased number of shares.The Intelligent Investor
Its consequences affect different investors in different ways. When the cost of living rises, bondholders suffer (inflation eats into both current interest income and the face value of bonds at maturity). For shareholders, the decrease in the purchasing power of money, on the contrary, is compensated by the growth of dividends and the share price. But shareholders should not be guided only by inflationary expectations: in a bull market 12, there is a danger of being tempted by the rising price of securities and continuing to buy shares, forgetting about their inevitable fall in the future. In addition, no clear relationship was found between inflation rates and changes in stock returns and their market value.
For a long time, investments in real estate were considered reliable protection against inflation, however, prices in this area are also subject to fluctuations, and there is also a risk of real estate fraud. Investors are protected from inflation by investment funds that own commercial and residential real estate and receive income in the form of rentals – in the USA, this is the Vanguard REIT Index Fund, etc. However, it is not necessary to invest in such funds if you own some kind of housing: invested in real estate and diversified your investment portfolio.
Treasury bonds are protected from inflation – government securities issued under the guarantee of the state: their value grows with inflation (although this increase in value is regarded as taxable income, so it is more profitable to use treasury bonds as an instrument of pension savings with deferred taxation).
All this uncertainty only confirms the need for portfolio diversification: don’t put all your eggs in one basket, don’t limit yourself to bonds or stocks only, then the consequences of inflation will not be so painful.
Reliability margin, or Pascal’s Wager
If Graham were asked to sum up the secret of smart investing as briefly as possible, he would put it in two words – safety margin. By buying undervalued shares, you get a favorable difference between the current price of the share and its present value. This is the margin of safety. If a company for a long time demonstrates the ability to make a profit that significantly exceeds interest payments, this is also a margin of safety, you can invest in such securities. Finally, the safety margin of a bond can be calculated by comparing a company’s total value with its debt (for example, if the debt is $10 million and the company’s value is $30 million, then the company can lose 2/3 of its value before the bondholders suffer a loss). The essence of the margin of safety does not change: in any case, the investor feels calm.
The margin of safety principle is reinforced by the principle of diversification: even if you incur some losses, the even distribution of securities ensures that you still have a better chance of making a profit. Well, the more securities in the portfolio, the more likely that the total profit will be greater than the total losses. Within the framework of reasonable diversification, even low-quality securities retain their investment potential. Ultimately, it is the presence of a margin of safety that distinguishes the investor from the speculator: the first one lays the straw in time, and the second hopes for a changeable chance.
The stock market is always an area of uncertainty, and some risks cannot be avoided. This market is like life. Once upon a time, the French thinker Blaise Pascal made an argument in favor of the fact that religious faith has rational grounds. Suppose you make a bet on the existence of God. Which position is more advantageous: to admit that God exists or that He does not exist? Recognizing the existence of God, you lead a righteous peaceful existence, and if in the end, the bet turns out to be lost, you still have not lived a life in vain. Having made a bet that there is no God, you live a relatively short life, not denying yourself anything, but losing will turn out to be too expensive – eternal torment in the next world. So the investor must be prepared for the fact that the calculations will turn out to be erroneous, but it is in his power to ensure that these errors do not turn into a disaster. By constantly diversifying investments and adhering to an average uniform investment, he is protected from the whims of Mr. Market. His happiness is only in his hands.
Top 10 Thoughts
1. A good investor is a patient investor.
2. There are no “good” and “bad” stocks – there are different investment tactics.
3. Always invest part of your funds in bonds and monetary assets, and part in stocks: from 50:50 to 25:75, depending on the market situation.
4. Never buy a stock just because it’s going up and sell it because it’s going down. Buy low, sell high, and always remember the fair price of the stock being traded.
5. Build an investment portfolio of shares of index funds that work with the entire market: instead of looking for a needle in a haystack, buy the whole stack at once.
6. Follow not the behavior of the stock market, but the behavior of the company whose shares are bought. An investor does not buy shares, but a business.
7. The market only names the price, and whether to follow it is up to the investor.
8. A financial advisor does not manage your money, but your emotions. It does not relieve vigilance.
9. Margin of safety – the two main words for the investor.
10. Focus not on individual stocks, even the most attractive ones, but on diversifying your investment portfolio.
1 . Diversification of the investment portfolio – investing in different assets in order to reduce risks.
2 . We are talking about the long-term fall of the stock market from 2000-to 2003.
3 . An issuer is an organization that issues (issues) securities to finance its activities.
4. Preferred shares – shares for which the investor’s voting right is not provided, but the right to a solid fixed income is provided. The owners of ordinary shares have the right to vote at meetings of shareholders, but the amount of their dividends depends on the current income of the issuing company.
5. For index funds, read the summary of John Bogle’s The Smart Investor’s Guide. A reliable way to make a profit in the stock market”.
6. That is, the initial public offering of shares on the market, making them available to a wide range of investors.
7. Warrants are issued to investors who have already purchased blocks of shares with the right to purchase an additional block of shares of the same company, but at a certain price (not coinciding with the market price) and within a certain time. A convertible bond gives the holder the right to exchange for shares in the same company.
8. Mason Hawkins is the CEO of Southeastern Asset Management, Inc., an investment company valued at $35 billion.
9. Robert Rodriguez is a fund manager at the largest investment company First Pacific Advisors, known for his extremely successful tactics of playing both stocks and bonds at the same time.
10. Warren Buffett is an American entrepreneur who has earned fame as the most successful investor in the world, and one of the richest people on earth.
11. The book value of a company is its total assets less intangible assets and liabilities.
12. “Bull market” – a period of long-term growth of securities in the market.