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Benjamin Graham ran a fund with assets under management of £2.5m in 1929. The crash wiped out most of that. In the Depression he pondered the meaning of “investing” as opposed to “speculation” and wrote the very influential Security Analysis book. Warren Buffett became his student in 1950. After regaining his investors’ money, between 1936 and 1956 Graham achieved average annual returns of 20%.
A sound investment operation means you (a) conduct thorough analysis of the company (b) aim only for a satisfactory rate of return (c) always build in a margin of safety. If any of those factors are missing you are not investing but speculating (e.g. buying on tips or inside information ignoring analysis, trying to guess short term market moves).
He realised he had been speculating prior to the Crash. The searing experience of the Crash led to the foundational value investing philosophy he developed in the 1930s.
Peter Lynch ran The Megallan Fund at Fidelity 1977-1990 achieving average annual returns of 29.2%, but experiencing some sharp reversals from time to time.
Aphorisms
[Price fluctuations] provide [the investor] with an opportunity to buy wisely when prices fall sharply and to sell wisely when they advance a great deal. At other times he will do better if he forgets about the stock market and pays attention to his dividend returns and to the operation result of his companies
Benjamin Graham
The investor’s chief problem – and even his worst enemy – is likely to be himself….We have seen much more money made and kept by ‘ordinary people’ who were temperamentally well suited for the investment process than by those who lacked this quality, even though they had extensive knowledge of finance, accounting and stock market lore
Benjamin Graham
Yearly figures [of portfolio performance], it should be noted………………To read more subscribe to my premium newsletter Deep Value Shares – click here http://newsletters.advfn.com/deepvalueshares/subscribe-1
