For most investors, the best approach to stock ownership is through cheap, widely diversified index funds, dollar averaging, and dividend reinvestment. Several investors (often successful business owners, executives or scientists) prefer to select individual shares, building the brick brick portfolio on the basis of individual business analysis.
For those few do-it-yourself investors, the father of value, Benjamin Graham, identifies five categories of ordinary investment funds that could lead to better than average earnings. For a committed portfolio manager who wants to invest capital, he put those words in his 1949 edition of Intelligent Investor.
1.General Trading: Predict or participate in market movements as a whole, reflected in known "average values".
2. Selective Trading: Selection of shares that, over a period of years or less, will perform better than the broader market.
3. Buying cheap and selling expensive: entering the market when prices and sentiment are weak and selling when both are at high levels.
4. Long-term Selection: Choosing companies that will have prosperity over the years far more than the ordinary enterprise (often referred to as "growth shares")
5. Purchases of Drops. Selection of derivatives that are sold at significantly lower than their true value
Who is Benjamin Graham?
In case you are wondering, Benjamin Graham was an investor and author. As I mentioned above, he is considered the father of investment because he is one of the first people to use financial analysis to invest in shares. And he did it successfully. Graham has created many of the standards and principles that many modern investors are still using. In fact, he is also known as Warren Buffett's mentor.
What does Graham mean?
Graham continues to address the specific difficulties that each active investor will encounter in determining how to manage his portfolio, saying, "Whether the investor should try to buy low and sell high, or should be content to hold on to stable good and bad securities - subject only to a periodic study of their inherent qualities - is one of several choices of policy that the individual has to make for himself, where temperament and personal situation can be determinant factors.
In a nutshell, Graham claims that someone close to the business world may feel comfortable with an active, buy-low, sell-high strategy. But for the rest of us, just taking a long-term vision and investing in funds that monitor the market is a more prudent investment strategy.
Persistence is key
Each approach requires rational, disciplined, systematic implementation. The key is Permanence. I personally deal with the 3rd, 4th and 5th techniques when managing my own portfolios and the portfolios of my business. They fit well in my preferences and values; I like to think long-term about a few great ideas. I do not want to get stuck in my desk and watch what the stock market does every day or a week. In fact, I do not have a say about whether the shares will rise 50% or 50% this time next year, nor will it matter to me.
The Conclusion
In this particular area of portfolio management, there is no correct or wrong answer while you act rationally, using facts and data to support your practices, and constantly strive to reduce the risk while preserving liquidity and safety. You need to decide what type of investor you will be.
Read more:
25 Canada Square, Level 33, office 50, Canary Wharf London, E14 5LQ +44 20 3608 6256
World Financial Markets - 0700 17 600 Varchev Exchange - 0700 115 44
Varchev Finance Ltd is registered in the FCA (FINANCIAL CONDUCT AUTHORITY) with a passport in the United Kingdom: FCA, United Kingdom - registration number: 494 045, which allows provision of financial services in the United Kingdom.
Varchev Finance Ltd strictly comply with the statutes of the European directive MiFID (Markets in Financial Instruments). targeting increased efficiency, transparency and uniformity of financial instruments.
Varchev Finance Ltd is authorized and regulated by the Financial Supervision Commission - Sofia, Bulgaria: License number RG-03-02-05 / 15.03.2006
The information on this site is not intended for distribution or use by any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.
Disclaimer:
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 63,41% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.