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After the trials and tribulations over the past 4.5 years, I admit I do spend an inordinate amount of time doing self-reflection, and at the same time, reading up on value investing and doing some independent thinking and analysis of my past mistakes; and how I can always improve on my investing techniques and stock selection process. Close to my heart is Benjamin Graham’s definition of investing, which bears repeating: “An investment operation is one which upon thorough analysis, guarantees safety of principle and an adequate return. Operations not meeting these requirements are speculative.” Notice that the man does not define investment in terms of making lots of money, and he also does not specify any time frame with which one should practice the above. This has led me, in recent months, to truly define and ask myself what is my purpose for investing; and what I would eventually like to achieve from it. The answer was quite clear and simple – my purpose for investing is not to “strike it rich”, but to obtain an adequate return on my invested capital which is higher than inflation. With that in mind, I focused on capital preservation and margin of safety, concepts which most readers are familiar with by now but I will discuss these two concepts from a slightly different perspective this time. In particular, the concept of margin of safety is not cast in stone and its definition is subject to interpretation by the practitioner.
Capital preservation is a concept which is not fully appreciated in the stock market. In fact, I dare say it is often downright neglected! This is because of the human being’s propensity to lunge after profits and gains, and to let the greedy side take over (I call it the “Dark Side of the Force”); while the prudent and conservative side of his brain takes a back seat. As veteran investors in the stock market probably know, NOT losing money is already quite an achievement, much less making a pile. Hence, the overarching principle involved in investing should be to protect your principle at all costs; and this can be done by undertaking a rigorous and painstaking research process to protect your downside. Before you even consider purchasing a security, ask yourself if the business can continue to grow or remain stagnant, if competition can erode the competitive advantage which a company has, or if the company has debt levels which you are not comfortable with. Read more...[caption id="attachment_2999" align="alignright" width="150" caption="Photo by Mirko Macari"][/caption]
After the trials and tribulations over the past 4.5 years, I admit I do spend an inordinate amount of time doing self-reflection, and at the same time, reading up on value investing and doing some independent thinking and analysis of my past mistakes; and how I can always improve on my investing techniques and stock selection process. Close to my heart is Benjamin Graham’s definition of investing, which bears repeating: “An investment operation is one which upon thorough analysis, guarantees safety of principle and an adequate return. Operations not meeting these requirements are speculative.” Notice that the man does not define investment in terms of making lots of money, and he also does not specify any time frame with which one should practice the above. This has led me, in recent months, to truly define and ask myself what is my purpose for investing; and what I would eventually like to achieve from it. The answer was quite clear and simple – my purpose for investing is not to “strike it rich”, but to obtain an adequate return on my invested capital which is higher than inflation. With that in mind, I focused on capital preservation and margin of safety, concepts which most readers are familiar with by now but I will discuss these two concepts from a slightly different perspective this time. In particular, the concept of margin of safety is not cast in stone and its definition is subject to interpretation by the practitioner.
Capital preservation is a concept which is not fully appreciated in the stock market. In fact, I dare say it is often downright neglected! This is because of the human being’s propensity to lunge after profits and gains, and to let the greedy side take over (I call it the “Dark Side of the Force”); while the prudent and conservative side of his brain takes a back seat. As veteran investors in the stock market probably know, NOT losing money is already quite an achievement, much less making a pile. Hence, the overarching principle involved in investing should be to protect your principle at all costs; and this can be done by undertaking a rigorous and painstaking research process to protect your downside. Before you even consider purchasing a security, ask yourself if the business can continue to grow or remain stagnant, if competition can erode the competitive advantage which a company has, or if the company has debt levels which you are not comfortable with. Read more...
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After the trials and tribulations over the past 4.5 years, I admit I do spend an inordinate amount of time doing self-reflection, and at the same time, reading up on value investing and doing some independent thinking and analysis of my past mistakes; and how I can always improve on my investing techniques and stock selection process. Close to my heart is Benjamin Graham’s definition of investing, which bears repeating: “An investment operation is one which upon thorough analysis, guarantees safety of principle and an adequate return. Operations not meeting these requirements are speculative.” Notice that the man does not define investment in terms of making lots of money, and he also does not specify any time frame with which one should practice the above. This has led me, in recent months, to truly define and ask myself what is my purpose for investing; and what I would eventually like to achieve from it. The answer was quite clear and simple – my purpose for investing is not to “strike it rich”, but to obtain an adequate return on my invested capital which is higher than inflation. With that in mind, I focused on capital preservation and margin of safety, concepts which most readers are familiar with by now but I will discuss these two concepts from a slightly different perspective this time. In particular, the concept of margin of safety is not cast in stone and its definition is subject to interpretation by the practitioner.
Capital preservation is a concept which is not fully appreciated in the stock market. In fact, I dare say it is often downright neglected! This is because of the human being’s propensity to lunge after profits and gains, and to let the greedy side take over (I call it the “Dark Side of the Force”); while the prudent and conservative side of his brain takes a back seat. As veteran investors in the stock market probably know, NOT losing money is already quite an achievement, much less making a pile. Hence, the overarching principle involved in investing should be to protect your principle at all costs; and this can be done by undertaking a rigorous and painstaking research process to protect your downside. Before you even consider purchasing a security, ask yourself if the business can continue to grow or remain stagnant, if competition can erode the competitive advantage which a company has, or if the company has debt levels which you are not comfortable with. Read more...
