Three Rules to Successful Investing

Investing is simple enough but not easy, it does not require a

high IQ but it will require emotional discipline and

common sense to be successful.

Follow these Three Rules from

Benjamin Grahamand

Warren Buffett

Rule #1: Master Your Emotions

“Individuals who cannot master their emotions are ill-suited to profit from the investment process.” Benjamin Graham

Two Principles to keep your emotions in check:

1. Avoid Self-Destructive Behavior

Driven by emotions like fear and greed investors engage in

negative behaviors like:

Chasing after popular stocks and hot funds

Avoiding areas in the market that are temporarily out of favor

Timing the market

Euphoria and fear has been influencing investor’s behavior

since the early 1st and 2nd century.

Investors who invest with their emotions are swayed by the

markets, with many selling when they should be buying all

the while chasing after popular (and thus expensive) stocks

thereby pushing stocks into expensive and bubble territory.

2. Don’t let emotions guide your investment decisions

“Be fearful when others are greedy. Be greedy when others are fearful.” Warren Buffett

• Great investors have built their wealth by keeping their

emotions out of their investment decisions.

• They normally invest contrary to public opinion –buying at

times of maximum pessimism and resisting the euphoria

around investments that have recently outperformed.

Unfortunately, as the study below shows, investors as a group too often let emotions guide their investment decisions with detrimental effects.

Rule 2: Disregard Forecast and Predictions

“The function of economic forecasting is to make astrology look respectable.” John Kenneth Galbraith, Economist and Author

• Investors are constantly bombarded by a barrage of

opinions and analysis from economist and researches on

emerging economic trends or stock recommendations,

investors should avoid such advice as a majority of these

so-called predictions are at best guesses and have no real

value.

Things that are not knowable: Short-term direction of the economy

Markets and stock prices

So timing the market is a fool’s game

“Far more money has been lost by investors preparing for corrections or trying to anticipate corrections than has been lost in

the corrections themselves.” Peter Lynch

History has taught that investors in stocks will always encounter crises and uncertainty, yet the market has continued to grow over the long term.

Rule #3: Concentrate on Value, not Price

"Investing is most intelligent when it is most businesslike." Benjamin Graham

• Price is what you pay, value is what you get.

We should view the stock prices that flicker on your computer screen or ticker on your TV as prices and not necessary the real value of the stock.

• That is why we should view the stock market as a giant marketplace with euphoria and fear driving the prices and use Graham’s Mr. Market is the best way to view the market.

So how do we know the value of an investment specifically a stock.

This is where Ben Graham’s two basic principles comes in

(taken from The Intelligent Investor):

Asset and Earnings Power Value

Margin of Safety

Graham suggests an investor start with Assets of the company because

they are more reliable pieces of information and is less prone to drastic

movements. Therefore a thorough understanding of each of the line items

in the Balance Sheet is important to get a picture of what a company is

worth.

To learn more about Asset and Earnings Power Value as well as

other valuation tools,subscribe to

WideMoat Analytics.https://www.widemoatanalytics.com/subscribe-now

This presentation is brought to you by:

https://www.widemoatanalytics.com/