An Investment In Knowledge Pays The Best Interest.
Excerpts from the Intelligent Investor which was written by Benjamin Graham
These teachings is what I base my Defensive Portfolio on!
1) If you speculate you will (most probably) lose your money in the end.
2) Buy when most people (including experts) are pessimistic; and sell when they are actively optimistic.
3) Investigate, and then invest.
One quality you need to adapt is a sense of financial history.
Investments may be soundly made with either of two alternative intentions:
a) To carry them determinedly through fluctuations that are reasonably to be expected in the future, or
b) To take advantage of such fluctuations by buying when confidence and prices are low and by selling when both are high
Intelligent investment cannot ignore price changes entirely. The security owner must pay attention to them at least to the extent of endeavoring to protect him against adverse changes of substantial size.
The buyer of common stocks must assure himself that he is not making his purchases at a time when the general market is definitely a high one, as judged by establish standard of common-stock values.
PART 1 GENERAL APPROACHES TO INVESTMENT
I What the Intelligent Investor Can Accomplish
Aggressive Investor Methods
1. General Trading- that is, anticipating or participating in the moves of the market as a whole, as reflected in the Familiar "averages."
2. Selective Trading- that is, picking out issues which, over a period of a year or less, will do better in the market than the average stock.
3. Buying Cheap and Selling Dear- that is, coming into the market when prices and sentiment are depressed and selling out when both are
4. Long/Pull Selection- that is, picking out companies which will prosper over the years far more than the average enterprises. (These are
often referred to as "growth stocks.")
5. Bargain Purchases- that is, selecting issues which are selling considerably below their true value, as measured by reasonably dependable
• General and Selective are speculative
• Buy Cheap and Sell Dear is an investment, but results are inconclusive.
• Long/Pull Selection has chances of loss as well as chances of profit.
• Bargain Purchases has a slight advantage over Long/Pull Selection, but chances are the same.
An Aggressive-Enterprising (with the right equipment) should be able to decide the average annual return obtained by the passive-defensive investor.
Investments suitable for two classes of investor.
A. The defensive investor will buy:
1. United States Saving Bonds (and/or tax-exempt securities)
2. A diversified list of leading common stocks, @ prices that seem reasonable in the light of past market experiences - or 2a. Shares of leading
B. The enterprising investor will buy: 1, 2, 2a - as above
3. Growth stocks, but with caution.
4. Also, or alternatively, representative common stocks when the general market is historically low.
5. Secondary common stocks, corporate bonds, and preferred stocks at bargain levels.
6. Some exceptional convertible issues, even at full prices.
The Intelligent Investor will not buy the following:
1. Investment grade corporate bonds and preferred stocks as long as current yield differentials continue; or foreign government issues at full
2. Leading common stocks when the market is at a high level as judged by past experience.
3. Secondary common stocks, except at tempting low prices.
4. As a corollary of 3, the intelligent investor will not buy new issues of common stock, with infrequent exceptions. (This does not refer to the
exercise of subscription rights on leading issues.)
Intelligent investors should not support new security financing except on terms which offer them proportionately as attractive a combination of income and safety as is obtainable by the purchase of the United States Savings Bonds plus common stocks of leading corporations at normal market prices.
Real money in investment will be made not from buying and selling, but from owning and holding securities, receiving interest and dividends thereon, and benefiting from their long term increases in value.
The following is the current federal tax rate as of 2014:
• Interest: It is added to your income tax.
• Dividend: For individuals in the 25%, 28%, 33% and 35% tax bracket, it is 15%. For individuals that make more than $400,000 and married
couples that make more than $450,000 it is 20%.
• Capital Gains: For individuals in the 10% or 15% tax bracket, it is 0%. For individuals in the 25%, 28%, 33% and 35% tax bracket, it is 15%. For
individuals that make more than $400,000 and married couples that make more than $450,000 it is 20%.
• Capital Losses: If your losses exceed your gains, the amount of the excess loss that can be claimed is the lesser of $3,000 ($1,500 if you are
married filling separately.)
Basically, price fluctuations have only one significant meaning to the true investor. They provide the investor with the opportunity to buy wisely when the prices fall sharply and to sell when they advance a great deal. The investor will do better if he/she forgets about the stock market and pays attention to is dividend returns and to the operating results of his companies.
The investor's primary interest lies in acquiring and holding suitable securities at suitable prices. "Buy at a low price and sell at a high price."
Market movements are important to the investor in a practical sense, because they alternately create low price levels at which he would be wise to buy and high price levels levels at which the investor certainly should refrain from buying and probably would be wise to sell.
On the whole, it may be better for the investor to do his/her stock buying whenever he/she has money yo put in stocks, except when the general market level is higher than can be justified by well-established standards of value. If he/she wants to be shrewd, he/she can look for the ever present bargain opportunities in individual securities.
"Never buy a stock immediately after it rise or sell one immediately after a substantial rise or sell one immediately after a substantial drop."
The stockholder judges whether his own investment has been successful in terms both of dividends received and of the long-range trend the average market value.