Wednesday May 25, 2022

The current share price will change the reality and the future

Every investor would like his portfolio to be better and more promising than average. It will therefore be asked whether when to allow the services of a skilled advisor or analyst of valuables should not be confused with the fact that the recipient will receive an investment of truly first-class quality.

Your rules and recommendations, to me, are just simple and tolerant. A highly trained, analyst, the furnace must use all of his knowledge and skills to significantly improve performance over him, especially as the list of events in the Dow Jones index. If not, then what are all the statistics, gaps and estimates of future potential good for?

In the series of books from the book of the most important investment advisor of the 20th century, learn from the most dedicated “investment guru” how to avoid these mistakes as an investor, broker or investment advisor and how to implement long-term investment strategies.
Even with a degree in economics or finance, Benjamin Graham soon became not only a full-fledged investor and portfolio manager, but also a leading theorist. If a number of things that are written in finance, often after a few months and even weeks a little stupid, Graham’s principles published many decades ago seemed to be more likely to go a long way in the truth and truth
.

Suppose, as a practical test, that we ask hundreds of stock analysts to choose the five best stocks of the Dow Jones index, which should buy the price in the late 1970s. liila (they would not share a single share).

Although it may seem so at first glance, it is not at all surprising. The main reason for this discrepancy is the fact that the current price of prominent events takes into account the main factors of the company’s economic situation for a relatively long time, but then it contains a general view of the company’s future prospects.

This means that the opinion of one analyst that a certain share is better than the rest, must be based on personal bias and subjective factors, or must be due to the fact that the analyst puts more emphasis on one group of value factors in his valuation work. not to another. If analysts agreed that one of the shares is a better investment than the rest, the price of this share would rise so much that all two benefits would be lost at this high price.

Here, Graham summarizes the theory of efficient markets, academic theory, it is argued that the price of any stock takes into account all publicly available information about the company. If we imagine that the market is a transparent search for millions of investors on a daily basis, we cannot rely on the fact that they can have significant mispricing for a long time. In one star anecdote, two professors of finance follow the rune path; one of them sees a twenty-dollar bill on the ground, bends to pick it up, but the other hand grabs his hand and says: Do not regret; if it really was a twenty-dollar bill, someone would take it.

Even if the market is not perfectly efficient, it is very close to this situation for most of the time. An intelligent investor should therefore bend over and pick up the twenty-dollar stock market bill only if he has thoroughly researched it and minimized trading and tax costs.

Our assertion that the current share price reflects both the fact and the future, we stated with the aim of emphasizing the two foundations of the market value. These two second components of the value correspond to two different approaches to the analysis of valuable beams. Every qualified analyst looks back to the future and realizes that his work is taught as good or bad depending on what happens and not what happened. However, the future itself can be approached in two different ways, which can be called projection and protection.

Those who place an emphasis on forecasting will try to predict relatively accurately the results that the company will achieve in the coming years, in particular they will try to estimate whether the company’s profit will show strong and sustained growth in the future. Their leads may be based either on a very careful analysis of such factors as demand and supply in the industry or volume, prices and costs, or they may be based on relatively naive notions of historical growth continuing to be completed in the future.

“The Smart Investor” is by far the best book ever written about investing. It is one of the thinnest publications of its kind, but so paradoxically perhaps most ignored in practice. Such is human nature. We just want to put everything together.

If these analysts believe that the long-term prospects of the company (shares) are unusually favorable, they will always recommend buying a given title, nor would they pay attention to the level for which the shares are traded at a given time. Such an approach was taken by investors and analysts, for example, the approach to the actions of airlines, it has been many years and a bone that has caused miserable economic results, the airlines showed it after 1946.

On the other hand, analysts (and investors) who make it more expensive or better to protect themselves are primarily interested in the price of the stock at the time of the analysis. Their main strength is focused on ensuring a sufficient margin (difference) of the estimated current value of the investment, and the market price of this margin (or safety policy) can then absorb unfavorable developments in the future. In general, it is not necessary for these analysts to be overly optimistic about the company’s long-term prospects as it is necessary for them to be rationally convinced that the company will prosper.

The first approach based on forecasting can also be called a qualitative approach, or it emphasizes results, management and other immutable, although highly important factors, can be included in the quality category.

The type of hedging approach can be called quantitative or statistical, or two in the case of a measurable relationship between the share price and profit, assets, dividends and other economic data about the company. By the way, it should be noted that the quantitative method is essentially an extended approach, used by securities analysts in the selection of investment bonds or preferred shares, to the area of ​​ordinary shares.

In our personal and professional lives, we have always preferred a quantitative approach. First, we wanted to make sure that we get enough value for our pension, in a concrete and demonstrable form. We have never been willing to accept future prospects and promises to compensate for the lack of tangible value. However, in this case it was not one of the standard procedures of investment authorities; On the contrary, most would probably sign the view that future prospects, quality of management and other intangible and human factors are many times stronger from the analysis of historical results, balance sheets and all other dry and inanimate objects.

Especially for individual choice, the investor should be more important for diversification. It is no coincidence that the generally accepted idea of ​​diversification, at least in part, is the fear of ambitious years of individual choice. If the hunter could reliably select the best stocks, then he would only lose diversification. Even within the borders, they have been set by the most general rules for selecting common shares in the portfolio of a prudent investor, there is room for relatively well-known freedom of preference.

In the worst case, a blame for these preferences should not cause a bottom code; on the contrary, it also means a certain result. Due to the growing influence of technological development on the long-term results of the company, the investor cannot afford to keep them completely out of his own weight. Here, as vude, he will have to find a balance between absolute defeat and plinth of hope.

The purpose of this revised edition of The Smart Investor is to apply Graham’s ideas to the conditions of the current financial market and still leave its original text intact (with the exception of notes under the explanatory note). Each Graham chapter is followed by a commentary. In these original shadows after the original text, there are also current examples, on which it is best to observe how current and how liberating remain Graham’s principles even today.

from the book: The Intelligent Investor

1. dl: Even a cautious investor will make time for it
2. dl: Speculation spe enrich someone else not vs
Length 3: Opposite investment tricks mean death
4. dl: You have to take speculation in the same way as casino games
5. dl: The investor and the speculator must pay attention to the forecasts of market development
6. dl: Mazan investor buys on the intermediate market and sells on bm
7. dl: A wise investor does not know that daily fluctuations do God
Length 8: A fearless investor can make up for stock market mistakes
Type 9: The investor must not allow the market to disturb him
10. dl: The price of the action is affected by five key areas
11. dl: Look at the pitfalls of earnings per share
12th dl: Bdl investor watches ethnicity business backwards
Debate 13: A prudent investor chooses only quality bonds

ADVERTISING

ryvek is from the book
“Intelligent investor”
vydan nakladatelstvm
City Publishing,
For more information, visit
www.grada.cz

Back to Top