Credit: Shutterstock photoI first discovered value investing around a year after I started investing.
In hindsight, I will admit I should have done more research on the topic than I did, as I did not know much when I began to invest my hard-earned money.
That being said, learning via my mistakes helped me discover value investing, and the core concept of value investing: do not lose money.
Learning from the master
My investing style and knowledge of the subject altogether changed after I read Benjamin Graham's "The Intelligent Investor." By far the most important lesson this book taught me was the notion that a share is a piece of a business, not just a piece of paper for speculation.
It is difficult to estimate how much I have made (or avoided losing) by knowing this critical piece of advice, but there is more to it than money. Graham's advice has kept me away from some of the most speculative stocks and investment fads, which has helped me refine and streamline my process.
Investment verus speculation
The realization that a stock is a piece of a company, not just a piece of paper, is the cornerstone of Graham's teachings. Financial information, not price fluctuations, is the most crucial factor of security analysis. To illustrate this point, Graham used his now-famous Mr. Market analogy:
Of all theinvestment adviceand research I have seen over the years, I believe this is the most valuable:
This advice is trying to get to the vital point that the market is a pricing mechanism for a liquid asset. There is no obligation to buy or sell for either party and 90% of the time, Mr. Market is wrong.
Not only does this concept define value investing, but it also illustrates the difference between investing and speculation. These two ideas come hand in hand. Speciation is betting on price, and investing is betting on the success or failure of a particular business -- it has nothing to do with the stock price.
Put together, this is probably the most valuableinvestment adviceI have ever received. To this day, I re-read Graham's words on a regular basis to make sure I am not letting my emotions get in the way of sensible investment decisions.
This article first appeared on GuruFocus .
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
