The S&P 500 $SPX500 opens at ATH with trade optimism. As for our portfolio, it opens around 0.5% up led by Parsley Energy $PE which had a terrible day yesterday losing nearly 5%. Today, the stock is up by 1.5%. Facebook $FB and Skyworks Solutions $SWKS also doing great today. You must have noticed that I made another investment in $FIT . This is again and arbitrage play which I believe is a better use of capital right now rather than just keeping cash. The spread is now 6.8%.
THE INTELLIGENT INVESTOR of BENJAMIN GRAHAM - Key VALUE INVESTING Lessons 📕
Many people say that value investing is dead and that what Benjamin Graham wrote in The Intelligent Investor no longer applies. I reread the book recently and wanted to give some applications of value investing today.
1. The first thing we learn from The Intelligent Investor is that there are two types of investors: Enterprising and defensive investors. You should know which one you are. An enterprising investor is a full time investor and is able to analyse multiple stocks and build a portfolio from the best. A defensive investor has less time to invest in the stock market and they can only pick a few big companies according to Benjamin Graham. Today, the defensive investor can invest in indices, in ETFs, mutual funds and even copy people on eToro. When I analyzed $ACB I looked at the derivatives. This is something that a defensive investor would not do and that's why they should not look at such small companies. Benjamin Graham said that a defensive investor needs 50% of his portfolio in bonds. Things are different today because of low interest rates, bond are not attractive. The enterprising investor looks for bigger rewards but doesn't take more risk.They look can invest in smaller companies and be less diversified. They can do cigar butt investing and arbitrage.
2. Mr Market. Ignore Mr Market. Mr Market will tell you about the value of your stock every day. Remember that a share is part of a company and there is no reason to sell or buy just because someone is telling you that the price is changing. Would you sell your house if someone tells you that it dropped in value by 20%?
The less expensive a stock, the less is the risk. CAPM and other economic theories might tell you otherwise but I don't see any rich economist. Theories also tell you that more risk, means more reward. That's not true. Like I told you, enterprising investors don't take more risk for greater rewards. They actually take less risk as they make more research.
4. Speculation vs Investing
Don't speculate! that's the advice Benjamin Graham gives. How do you know that you are speculating? When you are looking at charts thinking that they will predict the future. When you are asking other people if a stock will go down or up on a certain day. If you want to speculate, go to a casino, you'll find better luck there.
5. Benjamin Graham also talks about the margin of safety. We will be wrong when we find the intrinsic value of a company. Therefore, we always need to have a margin of safety. If you see that the intrinsic value of a stock is $100 and that now the stock is at $95. That doesn't mean that you should buy. You need a margin of safety, depending on the stock.
For the defensive investor(99% of people), the only book about investing you should read is The Intelligent Investor. Enterprising investors can read other books such as Security Analysis by Benjamin Graham and David Dodd, Margin of Safety by Seth Klarman, amongst others.
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