Speculative stock movements are carried too far in both directions, frequently in the general market and at all times in at least some of the individual issues.
Most of the time common stocks are subject to irrational and excessive price fluctuations in both directions as the consequence of the ingrained tendency of most people to speculate or gamble… to give way to hope, fear and greed.
I quickly convinced myself that the true key to material happiness lay in a modest standard of living which could be achieved with little difficulty under almost all economic conditions.
If General Motors is worth $60 a share to an investor it must be because the full common-stock ownership of this gigantic enterprise as a whole is worth 43 million (shares) times $60, or no less than $2,600 million.
The intelligent investor shouldn’t ignore Mr. Market entirely. Instead, you should do business with him- but only to the extent that it serves your interests.
No matter how careful you are, the one risk no investor can ever eliminate is the risk of being wrong. Only by insisting on what Graham called the “margin of safety” – never overpaying, no matter how exciting an investment seems to be – can you minimize your odds of error.
People who invest make money for themselves; people who speculate make money for their brokers. And that, in turn, is why Wall Street perennially downplays the durable virtues of investing and hypes the gaudy appeal of speculation.
Mr. Market’s job is to provide you with prices; your job is to decide whether it is to your advantage to act on them. You no not have to trade with hime just because he constantly begs you to.
If I have noticed anything over these 60 years on Wall Street, it is that people do not succeed in forecasting what`s going to happen to the stock market.
By developing your discipline and courage, you can refuse to let other people’s mood swings govern your financial destiny. In the end, how your investments behave is much less important than how you behave.
In the short-run, the market is a voting machine – reflecting a voter-registration test that requires only money, not intelligence or emotional stability – but in the long- run, the market is a weighing machine.
The ideal form of common stock analysis leads to a valuation of the issue which can be compared with the current price to determine whether or not the security is an attractive purchase.
The qualitative factors upon which most stress is laid are the nature of the business and the character of the management. These elements are exceedingly important, but they are also exceedingly difficult to deal with intelligently.
