Prediction or Protection ~ Basis of Investing ~ Graham Style

Prediction or Protection ~ Basis of Investing ~ Graham Style

Prediction , Analysis,  margin of safety concept , Basis of Value Investing, Stock Picking, Benjamin Graham Style, defensive Investor, Diversification

Basis of Investing

We invest in the present, but we invest for the future. But unfortunately the future is always uncertain 

  • Inflation and Interest rates are undependable
  • Economic Recessions come and go at random
  • Geo-political upheavals like war, commodity shortages & terrorism arrive without warning
  • fate of individual companies and their industries often turns out opposite of what investors expect.
Analysts and financial shenanigans keep busy forecasting and urging retail investors to invest based on projections.
As per Graham, though, investing on the basis of projection is a fool’s errand. He goes on to say that the forecast of so called experts are less reliable that the flip of a coin.
So, what is the alternative.
Graham goes on to suggest that it is in the best interests of the investor to invest on the basis of protection. 
What exactly is basis of protection? Well… It simply means
(1) Do not overpay for a stock and  
(2) Avoid overconfidence in your own judgement.
It’s a simple, yet a brilliant insight for successful investing ~ requires patience and discipline~ yet rarely followed and largely ignored by a vast majority of investors :
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– First, Don’t Lose… Losing some part of the money is an inevitable part of investing, and there’s nothing you can do to prevent it.
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An intelligent investor must take the responsibility upon himself to ensure that he never loses most or all of the capital whilst investing.  
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– The Risk is not in the stocks ~ Guess what ~ It is in ourselves.
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Graham expands this concept as the ‘Margin of Safety’ ~ which he has acknowledged as the core philosophy of his success….More on this concept, Risk, Investor Psychology and Uncertainly later…..

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