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.
BENJAMIN GRAHAMBy refusing to pay too much for an investment, you minimize the chances that your wealth will ever disappear or suddenly be destroyed.
More Benjamin Graham Quotes
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In the world of securities, courage becomes the supreme virtue after adequate knowledge and a tested judgment are at hand.
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Real investment risk is measured not by the percent that a stock may decline in price in relation to the general market in a given period, but by the danger of a loss of quality and earnings power through economic changes or deterioration in management.
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As in roulette, same is true of the stock trader, who will find that the expense of trading weights the dice heavily against him.
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Traditionally the investor has been the man with patience and the courage of his convictions who would buy when the harried or disheartened speculator was selling.
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The most striking thing about Graham’s discussion of how to allocate your assets between stocks and bonds is that he never mentions the word “age”.
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Calculate a stock’s price/earnings ratio yourself, using Graham’s formula of current price divided by average earnings over the past three years.
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Though business conditions may change, corporations and securities may change, and financial institutions and regulations may change, human nature remains the same.
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In the financial markets, hindsight is forever 20/20, but foresight is legally blind. And thus, for most investors, market timing is a practical and emotional impossibility.
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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.
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Price fluctuations have only one significant meaning for the true investor. They provide him with an opportunity to buy wisely when prices fall sharply and to sell wisely when they advance a great deal.
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Every corporate security may be best viewed, in the first instance, as an ownership interest in, or a claim against, a specific business enterprise.
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Successful investing professionals are disciplined and consistent and they think a great deal about what they do and how they do it.
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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.
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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.
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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.
BENJAMIN GRAHAM