Friday, November 21, 2008 0 comments ++[ CLICK TO COMMENT ]++

Time to revisit Graham?

I am nowhere near being an adherent of Benjamin Graham's investing techniques, but I am influenced by his insightful thoughts. The Globe & Mail's Globe Investor magazine has a nice article questioning the performance of Graham followers and value investing in general.

Graham is widely acknowledged as the father of value investing—the school of thought that’s sober, numbers-based, and which aims to buy companies at hefty discounts to their intrinsic value, rather than according to the minute-by-minute mood swings of the investing public. So-called Mr. Market isn’t at all rational, showing up at your door every day and offering you a different price for your shares. Just take a look at the bipolar Dow this fall: down 777 points one day, up almost 1,000 a few days later.

“Graham used to talk about Mr. Market being a manic, paranoid, schizophrenic individual who goes up and down for any reason at all, unrelated to the fundamentals,” says George Athanassakos, director of the Ben Graham Centre for Value Investing at the University of Western Ontario. Our purpose as value investors is to find out what those fundamentals are, determine intrinsic value, and not be swayed by human emotions.”

In theory and results, a solid philosophy. In practice, very hard to pull off, because when everyone in a crowded movie theatre is shouting fire and fleeing for the exits, it takes nerves of steel to do the exact opposite.

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