The Intelligent Investor - Benjamin Graham (Part 1)

The Intelligent Investor - Benjamin Graham (Part 1)

The Intelligent Investor - Part 1

           Part 1 of the article introduces the basic concepts of value investing and help you overcome your biggest weakness: just think of the psychological value, not market value should be considered.

           After reading "Search 100 million / 1 hour through shares" many of you asked me if I would like to learn more about the stock investments can learn where. Some of you complained that the class of stock and stock books presented too confusing, this document or website are taught how to invest short and easy to understand.

           To learn about investing (investing anything, not just securities) is not any better than by just reading the book "The Intelligent Investor" by Benjamin Graham. Maybe the majority of people in Vietnam have not heard about this book, but can be compared as follows: This book can be considered as the Bible of investment securities. It's up to the platform from which many generations of investors and academics develop theories and methods of modern investment world that is currently applied.

           The book published in 1949. There are many interesting stories surrounding the book and its author. For example, many young people that after reading the book came to class on investing Benjamin Graham's author. Thanks to this class, most students are Graham later become millionaires and billionaires and investment by business, the most prominent of which is Warren Buffett (the second richest man in the world today, only after Bill Gates). Buffett was the only student to get an A + in the teaching career of Graham, and like some other students, see Graham Buffett is his second father. Later, they even took his name Graham to name his son to acknowledge the great influence of Graham for them (which is the American culture, and the Vietnamese would never do that ).

           Personally, I finished reading the book (nearly 1 years) also felt the same thing. It completely changed my thinking about investing, business, and other aspects of life. And I think it can also help you with things like that.

 I wrote this article for two purposes:

           1. As a sequel to the song "For 100 million / 1 hour through shares", in which I stated investment perspective to suit everyone not to waste time on things that do not suit them, then they would have been very satisfactory profit from the effort. As this article for those who have the ambition to achieve higher levels of profitability that are on the road and looking for a strategic investor for its own reliability.

           2. Summarize the contents of the book "The Intelligent Investor". I was surprised that the investment principles invaluable, though very simple and easy to understand, of Graham were not popular in Vietnam. I call these principles as part of basic math that anyone can have if you want to start learning physics research. Many people learn about investing (Physics part) in Vietnam today has never been fitted to the "basic math" is.

 Prices and values:

   According to Graham, when investing in anything, you should consider two and only two concepts:

 - Market value (price) is the amount that you need to spend.

 - Value (value) is what you will receive in the future.

           Prices are understandable, is not it? But how to know the value? We will try to give an example: a recently graduated female baccalaureate student is considering whether to go to study in foreign university or not. Duration is 4 years, and a total cost of 40 thousand dollars, paid off in the first place (by the Consulate amount required to be available at 40 thousand in the bank account). Please consider this as an investment decision, and only consider the economic aspects, whether she should go to school or not?

 Prices here are 40 thousand dollars of money to spend.

           And how to calculate the value of the easiest is to determine how much she will earn after graduation. After 4 years, she would return to Vietnam to work with starting salary is $ 400 / month, ie 4,800 dollars / year. She also believes that her ability, her annual salary will be increased by an average of 25% / year (I myself did not dare dream thought he had such a wage increase, but not all, women often daydream that). That is, in the second year, she will earn $ 6,000, next year is 7,500 dollars.

           But she wanted to work in only 6 years, then she will get married and leave! So the total amount after 6 years of work are:

 4.800 + 6.000 + 7.500 + 9.380 + 11.730 + 14.660 = 54.070

 Skip to acquire 40 thousand and 54 thousand, so this is the right investment decisions? Not really, she was here to note that the currency's value will change over time. For example, if I have 100 and the bank decided to leave the interest rate of 8%, then after one year I will have the 108 (100 + 8 at which the interest rate). In other words, the amount of 1 108 the following year in the future will only comparable to the 100 in it now. If you have 2 options: 1) get the 100 right now, or 2) after receiving the first 100 years, then I will choose the right one, because there are 100 on hand at the bank I will put to one year after get the 108 instead of the 100 if only choose 2.

 So 4,800 dollars in 5 years (4 year + 1 year of employment), calculated at the rate of 8% / year, equivalent to only 3,267 in current dollars, the same for the following year. To evaluate the investments correctly, we need to exchange cash flows in future years to the present, compared to the amount initially spent 40 thousand. She made the following spreadsheet:

Present Value (GTHT) of the total amount is indicative only 29.150 dollars. Clearly, if only in terms of economy, this is a bad investment decision process. Tips: she should go find another course, or can even consider marriage right now.

 The above is a very simple example when analyzing the school of value investing (Benjamin Graham is considered the master of this school). When analyzing a business, you can apply the same 40's of thousands to spend the money (market price), while the wages earned in the future is the cash flow from that business profits will born in the future, you will predict cash flow and calculate the value of such investments.

Overcoming the biggest weakness of the Vietnam Benjamin Graham said early in the book that the biggest enemy of investors is himself. That is, most of the mistakes that investors should not have come from the objective reasons (companies suddenly bankrupt, fraud management, market risk, ...) which is due major mistake that all investors are self-inflicted. This is especially true in Vietnam: most people usually worry and blame for objective reasons (can watch the interview online recently) rather than self looking back myself.

 Here I try to analyze the biggest weakness of the Vietnamese people to invest. Well, to put it briefly is this: people are greedy Vietnam's cheap. In the eyes of foreigners, the Vietnamese are miserly, saving not know.

The miserly is only thinking about market prices. And people who know saving compromise between cost and market value.

Presentation behind especially important for anyone who wants to step into the world of investing. Even if you are not interested in investing, you also need to know the following to be more correct view of the procurement spend.

Example 1. I used to be very good friends and colleagues ridiculed because of the way I spend money for breakfast outside. My breakfast cost about 6-8 thousand dollars, while those that boast that they only eat sticky rice, bread, ... 1-2 thousand dollars. For breakfast so cheap, they shall not work or study is to 10am dizziness, nausea yawning lazily. What is more funny after breakfast they continue to spend more money to buy other things to eat to help hungry and tired! That is, if the amount actually spent, and more at the labor productivity is reduced because of low initial desire, the cost 1-2 thousand dollars is not a bargain at all. I wish they could see the Japanese diet: very questions, but by eating so that Japan can work with 100% capacity for up to 70 years old and still runs fine, while the majority of Vietnamese people are not enough power to 50% of capacity until the age of 35. Despite difficult economic conditions and how well the Japanese are willing to invest adequate meals.

Example 2. Some of my friends are buying motorcycles China car selection. The only reason: cheap. They argue that the car has had only 5 million, while Japanese car (second-hand) then have doubled. On the right is the market price Chinese cars attractive. But considering the quality of the other. Considering the amount to be spent to retouch and edit to Chinese car can run, then consider useful life, taking into account the safety of the driver, ... all that constitutes a figure known as "value" for the remote, and compared with a market price for money, the result is not necessarily always the Chinese car more attractive.

 Through two examples above, we see that the Vietnamese people usually think of when the market price of items purchased something. "Method" analysis is widely applied: compare the market price of the items together to choose the best. There's also a "school" is too common, especially in women: comparison of prices from time to time. Example 3: the third most brand name mobile phones, fashion clothing, shoes are priced much higher than the real value that they used to bring. My girlfriend may not want to buy shoes for $ 1 million too expensive, but if you just need to hear information 30% off sale (price for 700 thousand dollars) are guaranteed instant fidgety. Instead of comparing prices and market value, so now my girlfriend just thinking between price before and after discount!

The first step to investing is wise to know buy cheap. Buy cheap means buying the market price is much lower than the value. Note: The market value does not mean the questions, and as the low value does not mean cheap. Prices decreased significantly (shoes off sale, tax evasion portable goods, stock price drop, ...) does not mean that it was cheaper to invest.

 Example 3: Recently I learned that the price of 1-2 thousand buyers away in example 1 is playing stocks. Needless to say you may have to guess how they purchase. :-P They criticism focused on the floor stock market prices have problems too (the code up to 300-400 thousand / share), should be rushing to play the OTC market (black market can understand that), because in that market stock price is very cheap (with the only 10-20 thousand / share). Or if the Blue Chip stocks (the stocks market expectations as Kinh, REE, VNM, ...) has a market price is too high, they will rushing to play the Penny Stock shares (the shares market super cheap).

I tried to learn how to "analysis" of the new shares to start playing, and discovered many interesting points. The first information that they find to be the stock price at the end of each day (in newspapers, websites, newsletters stock ...). Any price list always has at least 2 columns: stocks and the market price of the day. And that is the only information that they used to "analyze". Only 2 column, they analyze how? It's simple: they compare the price with each row in the table! For example, they compare the following two lines:

 Cp Price

 BBC 48

 KDC 220

And they concluded that Bien Hoa Confectionery (BBC) more attractive Kinh Do (KDC)! (Remember the people you're buying Chinese rather than Japanese car?)

Some people are "academic" more than price, they also look at the price chart of each stock market. When they see the current market price of the shares that are the lowest compared to the previous 3 months, they will nail security that stock is very cheap! (Remember the ham girlfriend off sale buy it?).

Investment Analysis is not so! Never charge all the time to read or see price graph, because they only know a single variable: market prices. You can not see any column value in the price table.

In selling pho She has taught me that not miserly, so that instead of saving. So if the avarice of her life will be poor forever, whether you are going to make a lot more money. But if you know the savings, you will always be well-off, though I do not earn as much money as others.

 She also taught that the old year is often recommended when buying something is not enough at all 3 factors: cheap, durable, beautiful. If you just stare thinking "cheap", you certainly will fail when stock investments.

Table of Contents:

The Intelligent Investor - Part 1

The Intelligent Investor - Part 2

The Intelligent Investor - Part 3

Source: http://tobecomeabillionaireonline.blogspot.com