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Lessons Still to Be Learned From Legendary 'Intelligent Investor'

Lessons Still to Be Learned From Legendary 'Intelligent Investor'
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Thursday, 26 April 2018 02:41 PM Current | Bio | Archive

"The Intelligent Investor" was written Benjamin Graham and published in 1949. The book is widely used by many gurus and business schools as a teaching tool but is partly outdated. It was and is a widely acclaimed book on value investing. Graham died in 1976.

If you glean the key chapters of the famous book, The Intelligent Investor, you will see that there are key variables and new technology that have changed some of the logic used in the original book.

The Author, Graham defines investment as the result of a thorough fundamental analysis in the company in which you invest, which results in the promise of “safety of principal” and adequate return.

Here are a few key chapters with new strategies:

  1. Chapter 4 - General Portfolio Policy: The Defensive Investor

Defensive stocks would be those investments which do not fluctuate downward as much as the markets as they go down. In the original book, it suggests that defensive investors should divide their funds between safe fixed income, quality bonds and blue chip common stocks. In selecting bonds, there are many issues to consider such as stability, yield, safety, pending inflation etc.

New Strategy: Defensive positions of the past may not be protected from any downturn. In the financial collapse of 2009, many excellent defensive stocks were down 30-40%. One of my clients lost 40% of their value in a money market and bond fund. The key is to find a security that actually rebounded quickly in 2009 or maintained value. As for bonds or CDs that pay little or no interest, that may be safe, but has no upside.

  1. Chapter 9 - Investing in Investment Funds

There are a wide number of investment funds, each with unique pros and cons. Funds differ with respect to their goals, strategies, tax issues, trade-ability, fees, and in other respects. Methods for assessing the value of a given fund will differ depending on the nature of the fund in question.

New Strategy: Invest in the best securities regardless of taxes, but taxes and fees are very important. Over the last 9 years years fixed income yields are down, but long term growth is finally back up. In the last 30 years, wealth management and financial planning have become high net worth services in the banking, brokerage and insurance industries. People must be wary of suitability and risk tolerance along with time horizon issues. Also, the effect of high fees on financial products or funds can have drastic long term consequences.

  1. Chapter 10. The Investor and His Advisers

Investors need to be cautious with any advisors making promises that are too good to be true. Be careful of advisors who have an allegiance to institutions and fees, rather than individual clients. Common sense and a second opinion are valuable faculties.

New Strategy: With No Load Mutual Funds, ETFs, Proprietary Funds of Major Brokerage Houses, there is more flexibility to invest with minimal fees into a diverse basket of stocks or an index. Further, robo investing is all the rage where your money is automatically invested based on your computer settings and limitations. Even top money managers are using funds and ETFs within their funds. Further, there are ETFs and funds that are niche investments in a country, commodity, or even act like a hedge fund.

  1. Chapter 14 - Stock Selection for the Defensive Investor

Value investing is focused on quantitative analysis of past and present information, with the goal of minimizing investment errors.

Forecasting future events is not a theme of Graham’s methodology.

Risk can be minimized by focusing on investment standards of quality and price.

New Strategy: Information more readily available online regarding SEC, Lawsuits, Sovereign Risk, Technical Charts, Institutional Investors. Get the best online tools and use them to make educated decisions. People now download the Applications which help with information and sign up for alerts. Further, stop loss triggers can be set up by the average investor online.

  1. Chapter 19 - Shareholders, Stakeholders, and Management: Dividend Policy

There are 5 stakeholders in any company: 3 are: Owners/Shareholders, Management, and Employees. All have rights to negotiate with the company or question the company or demand answers. The other stakeholders are customers and community. All are important in analyzing a company.

New Strategy: The Government is the new stakeholder that has been overlooked by economists and business schools. Every company and sector can negotiate for better terms with the government or foreign governments. Every business can do deals with the government and even sell them products and services for billions. Even dividend regulation and net income can be changed with the tax code on both a domestic and international level.

While Benjamin Graham’s book is legendary, technology and global investing has changed everything. With over 7 billion people and over 190 nations, real time investing opportunities and access to global-secondary stock markets by customers worldwide has changed everything. Technology and new products are a huge path to diversification and investing into new markets by end users who may be simply using a home computer or smart phone.

George Mentz JD MBA CWM Chartered Wealth Manager ® is a licensed attorney and CEO of GAFM ® global education, which is an ISO 29990 Certified professional development company operating in over 50 nations.

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GeorgeMentz
If you glean the key chapters of the famous book, The Intelligent Investor, you will see that there are key variables and new technology that have changed some of the logic used in the original book.
intelligent, investor
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2018-41-26
Thursday, 26 April 2018 02:41 PM
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