eBusiness Weekly
Kudzanai Sharara
Stock market investors are all too often lured by the prospect of instant millions and fall prey to the many fads of stock market investing.
However, the myriad approaches they adopt offer little or no real prospect for long-term success and invariably run the risk of considerable losses. In fact, some of the investment approaches resemble speculation or outright gambling.
There is no coherent investment programme and as a result, globally the average return an investor gets in the stock market is around 10 percent. However, as in every other thing there is always room for improvement if one is willing to learn.
Reading books about investing is one way of learning. There are a number of investing books that can give one a better chance of investment success.
The Intelligent Investor: Benjamin Graham
Written, arguably, by one of the greatest investment advisors, Benjamin Graham, The Intelligent Investor has inspired many an investor.
Graham’s mentee and one of the stock market’s greatest investors Warren Buffett claimed buying The Intelligent Investor is the best investment he has ever made.
“Whatever the cost, it would underscore the truth of Ben’s adage: Price is what you pay, value is what you get. Of all the investments I ever made, buying Ben’s book was the best,” Buffett said.
The Intelligent Investor centres on Graham’s “value investing” philosophy which shields investors from substantial error and teaches them to develop long-term strategies.
Value investing, according to The Motley Fool, is an investment strategy that focuses on stocks that are under appreciated by investors and the market at large.
The stocks that value investors seek typically look cheap compared to the underlying revenue and earnings from their businesses.
In the book, Graham stresses how important it is to buy investments below their true or intrinsic value. According to him, the higher the price one pays, the lower the return will be. If done properly, the strategy allows investors to enjoy profit on the upside as the market eventually revalue the asset to fair value.
The key lesson in the book is to never overpay for an investment, no matter how exciting it may appear to be.
Margin of Safety: Seth Klarman
Probably borrowing from Graham, Seth Klarman’s book ‘Margin of Safety’ explains the philosophy of value investing, and perhaps more importantly, the logic behind it.
In the book, Klarman demonstrates why the value investing strategy succeeds while other approaches fail. The blueprint that Klarman offers, if carefully followed, offers the investor the strong possibility of investment success.
The key lessons Klarman puts across in Margin of Safety are for investors to focus in minimizing risk as opposed to returns; the need for discipline to avoid the next hot speculative trend as well as not confusing speculation with investing.
Margin of safety is a principle of investing in which an investor only purchases securities when their market price is significantly below their intrinsic value.
If the total value of all shares of a company is 30 percent less than the intrinsic value of that company, then the margin of safety would be 30 percent.
In other words, if the stock price of a company is below the actual value of the cash flow (income) and assets of a company, the percentage difference is the Margin of Safety.
There’s Always Something To Do: Christopher Risso-Gill
Another book, that also seem to have been inspired by Graham’s philosophy is Christopher Risso-Gill’s “There’s Always Something To Do”. Though writing about Peter Cundill’s investment approach, Risso-Gill provides the formers’ accounts on how he searched for stocks in unglamorous areas of the market.
In the book Cundill is quoted saying: “Be prepared to put money into anything, anywhere, provided that the downside is measurable and acceptable and the chances of a good profit appear to be better than 50 percent.”
Throughout the book, Risso-Gill talks about what makes a successful investor including insatiable curiosity, patience, concentration, attention to detail, independence of thought, humility and skepticism.
The Sleuth Investor: Avner Mandelman
Avner Mandelman’s “The Sleuth Investor” is also an interesting book to read. His methods are however unorthodox. To uncover the best stocks before they make their move, Mandelman says investors must go beyond financial results and trading updates.
Mandelman suggests that to uncover the best investing opportunities, an investor has to hit the road and perform on the ground due diligence to find a company’s real value.
Using Mandelman’s strategies and techniques investors will have to follow the physical movement of a company’s product, and connect it to financial results.
Investors can also collect information from a company’s low-level employees as well as clients and suppliers and use it to make investment decisions.
