Thursday, January 15, 2009

Banjamin Graham's Value investing .

Graham propounded the Net Current Asset Value (NCAV) Rule for deciding if the company is worth buying.If the NCAV is above the market price, the investor buys a bargain, because he pays nothing for the fixed assets.Though such companies are really hard to find, Graham's deciples
have helped evolve his basic principles-to look for companies with hidden value that is not reflected in the market price.Graham believed in diversification.Investors, he felt should hold a quarter of their portfolio in bonds, another quarter in stocks and the balance 50 % in stocks or bonds depending on stock and bond prices.Among stocks investors should try to have at least 30 different holdings.He, himself normally held about 75 stocks.When in doubt, he proposed investors should stick to good quality companies with solid dividend history,low debt and reasonable P/E ratio, while serious mistakes can be made in buying poor stocks, one cannot go wrong with quality stock at fair prices.Graham stressed the importance of a long record of paying dividends.It meant that the company had substance and limited risk.Graham also preached patience, since the market was " not a precise weighing machine,but a voting machine", the outcome was a result of partly reason and partly emotion.Despite all care, there was a possibility of poor returns in the short term.Finally and very importantly,Graham dissuaded investors from following the crowds.It is important to think correctly and also independently.And to keep thinking of ways to ensure safety and maximum growth." To achieve satisfactory investment results is easier than most people realise, to achieve superior results is harder than it looks" wrote Graham.

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