In this post we’re going to look at Benjamin Graham’s point of view on how a traditionial investor behaves and the rules that investors use to make major profits. These rules will guide us on how to invest like a pro.
Benjamin Graham is an American Ecomonist, Professor, and Investor. He is widely known for Value Investing. Benjamin Graham also taught the famous Warren Buffett.
1.) When buying a share of a company, the corporation should have a long history of dividend payments.
The reason you want the company to have this type of history is so that you can make extra money. Make sure to look at how much your getting in dividends. More isn’t always best in this case. Higher divident payments can make it harder for the company to pay you.
2.) Benjamin Graham talks about two types of investors in his book “The Intelligent Investor.” He states that there is a defensive and a enterprise investor. He goes on and tells his readers that the intelligent investor learns how to be both passive, and defensive by putting 25 percent in bonds and 75 percent in stocks.
He also states that if you can’t handle risk, than you should invest 75 percent in bonds and 25 in stocks.
3.) Always pick a stock that is undervalued and don’t follow the hype.
Wouldn’t you rather buy a product that is cheap but has good quality. Why not do the same with companies.
A way you can see if a company is undervalued is by:
– Looking at the PE/RATIO.
– Looking at the companies performance.
– And looking at how much debt the company has taken on.
When your looking at a potential stock, you would like the PE/RATIO to be normally below 10 or 15. This will show you that if the stock price is too high or just right.
To view a Companies performance you will have to look at how much income the company made after tax, debt, and liabilities. (I look at the income statement to see performance results.)
You will always need to keep a close eye on how much debt a company takes on. This will show on the balance sheet under liabilities or if a company wants to be sneaky they will just write it out in confusing words. The best companies are able to survive economic disasters by taking on less debt and cutting regular expenses. So during economic disasters great companies will be highlighted red, but on the spread sheets great companys will have higher profit margins than their competitors.
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