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Sunday, November 05, 2006

Businessline - Investment Nuggets


If you cannot afford to ignore the advice of the Oracle of Omaha, Warren Buffet, the man who taught the Sage the core investing tenets must obviously be someone very special. Meet the legendary Benjamin Graham, christened the "Father of Value Investing" and sometimes called the "Dean of Wall Street". He has also immortalised himself by penning two investment classics: Security Analysis (with David Dodd) and Intelligent Investor — must reads for anybody entering and staying wedded to the investment profession. Enjoy the wonderful wit and wisdom through these quotable quotes:

Short- vs long-term investing

"In the short term, the market is a `voting' machine whereon countless individuals register choices that are product partly of reason and partly of emotion. However, in the long term, the market is a `weighing' machine on which the value of each issue (business) is recorded by an exact and impersonal mechanism."

On market fluctuations

"Since common stocks, even if investment grade, are subject to recurrent and wide fluctuations in their prices, the intelligent investor should be interested in the possibilities of profiting from these pendulum swings. There are two possibilities of profiting from these pendulum swings: The way of timing and the way of pricing. By timing we mean the endeavour to anticipate the action of the stock market — to buy and hold when the future course is deemed to be upward, to sell or refrain from buying when the course is downward. By pricing we mean the endeavour to buy stocks when they are quoted below their fair value and to sell them when they rise above such."

The madness of `crowds'

A story that was passed down from Ben Graham illustrates the lemming-like behaviour of the crowd:

"Let me tell you the story of the oil prospector who met St. Peter at the Pearly Gates. When told his occupation, St. Peter said, "Oh, I'm really sorry. You seem to meet all the tests to get into heaven. But we've got a terrible problem. See that pen over there? That's where we keep the oil prospectors waiting to get into heaven. And it's filled, we haven't got room for even one more." The oil prospector thought for a minute and said, "Would you mind if I just said four words to those folks?" "I can't see any harm in that," said St. Peter. So the old-timer cupped his hands and yelled out, "Oil discovered in hell!" Immediately, the oil prospectors wrenched the lock off the door of the pen and out they flew, flapping their wings as hard as they could for the lower regions. "You know, that's a pretty good trick," St. Peter said. "Move in. The place is yours. You've got plenty of room." The old fellow scratched his head and said, "No. If you don't mind, I think I'll go along with the rest of 'em. There may be some truth to that rumour after all."

Warren Buffet, relating a story by Benjamin Graham