Graham is one of the most famous investors. He has many investment ideas that are worth learning for ordinary investors. But what is Graham's investment philosophy? What are his investment contributions? Let's study together.
We all know that the commonly used valuation indicators include P/E ratio, P/B ratio, dividend ratio, profitability, PEG, etc., but what are the valuation methods when we know the valuation indicators? The valuation index is like the weapon that heroes are good at in swordsman novels, and the valuation method is the move that heroes are good at. Each Great Xia has his own unique moves, and different weapons need to be matched with different moves to exert greater power.
This is also true in the field of investment. Every investment master has his own valuation indicators and valuation methods. Learning valuation methods from the master before learning investment is the most successful and worry free method. So what investment masters can we learn from? For example, Benjamin Graham, Warren Buffett, John Berg, George Soros, etc. are all very famous investment masters who have made great achievements in their respective fields. Since Warren Buffett and George Soros' investment methods are complex and not suitable for novices, we focus on the investment methods of Benjamin Graham and John Borg.
Graham's contribution: Graham is Buffett's teacher and known as the "father of modern finance". He has three famous views:
1. Relationship between price and value: Graham mentioned this view in his book "Smart Investors". Stocks have their intrinsic value, and the price of stocks fluctuates around their value. Although the stock price is unstable, the stock price is consistent with the stock value in the long run.
2. Capability circle: The capability circle requires us to have a good understanding of the varieties we invest in and be able to judge their approximate value, rather than what is popular for investment. The more we know about a variety, the larger our ability circle will be. The ability circle simply means "no diamond, no porcelain". For our ordinary investors, we have a capability circle only when we can judge the value of the stocks we invest in.
3. Safety margin: The margin of safety is Graham's most important theory. There is also the stock price factor when investing. We need to judge the relationship between the current stock price and the internal value. But how to judge this relationship? For example, if we know the stock worth 1 yuan, will we spend 2 yuan to buy it? No smart investor would do that. Graham summed up the margin of safety with a figurative sentence: "We will use 0.4 yuan to buy things worth 1 yuan." Investment is to buy stocks at a lower price than the value.
The margin of safety is Graham's most important investment idea. The significance of the margin of safety is that when the price is significantly lower than the intrinsic value of the stock, then the investment has a margin of safety. If the price is significantly higher than the value, buying will not only fail to make money, but may also lead to loss.
The reason why many investors lose money is that when they see such popularity, they will buy whatever goes up well without caring about the value of the stocks they buy. Graham said that "the main reason for investors' losses is that they do not know their ability circle and ignore the safety margin."
Graham's contributions can be summarized as follows:
1. The relationship between price and value: price fluctuates around value, but tends to be consistent for a long time;
2. Ability circle: only with the ability circle, can we judge the value of stocks;
3. Safety margin: buy when the price is significantly lower than the value.
