INVESTMENT ADVICE - THE INTELLIGENT INVESTOR - CHAPTER 10

I continue with summarizing Graham’s book The Intelligent Investor and today we touch on a very delicate subject: The Investor and His Advisors. As I offer stock market research services you can put me into both the investor and advisors group. Let’s first see what Graham has to say and then discuss the current environment. Seeking investment advice Differentiate between stock market forecasts and business forecasts Advice from brokerage houses Graham on investment bankers As Graham is in favor of investing in businesses he considers seeking investing advice as naïve. Relying on other people to make investment profits for you is not always the best thing to do. There are two different investment advices you can get: one is there to protect you from doing stupid things while you might also seek advice that will give you better than average investment returns. Graham’s message is simple: you either let somebody else manage your funds and seek a conservative return or you understand the implications behind more complex investment strategies that might lead to higher returns. Differentiate between stock market forecasts and business forecasts As there is plenty of demand for what people think the market is going to do, there is plenty of supply for that but according to Graham there is absolutely no value there as market forecasters are right or wrong merely thanks to luck. Where there is value is business forecasts which are a completely different ball game. When you know the business and apply Graham’s principle that the price what you pay in relation to the business you buy is the key factor, then business analyses add value. Advice from brokerage houses: I think nothing has changed there since Graham’s time where I quote: “Most stock-exchange houses still adhere to the old-time slogans that they are in business to make commissions and give the customer what they want.” I also see that the current financial environment is geared so much towards trading where such houses keep making their commissions. Even if the average commission is much lower today, the number of trades is much, much higher than it was and you can trade a stock 10 times in a day if you want. Graham’s take on the matter is that you have to seek value minded and not quotation-minded analysts to help you. If you focus on the former, you will do much better in your financial life. Graham on investment bankers: Graham takes is simple: investment bankers are needed to create a stock market but when their customers are greedy they also offer what the customer demands. An example of such imprudent advice are 1999 IPOs, 2006 CDOs etc. So, always keep an open eye with such vehicles. Conclusion: My main wish is that everybody takes responsibility for one’s own financial life and a great way to do that is to read Graham’s book. If one does not have time, today it is easy and cheap to be a defensive investor where one simply rebalances between risk free bonds and stocks depending on their earnings yield. Those who have more time will educate themselves about investing and seek advice form others not in the form of what to do but in the form of research, analysis and a value, business oriented opinion. Remember, nobody knows whether a stock will go up or down, but there are people who can properly analyze a business. In the long term, business analysis is all what you need. Want to know more about what I do? https://goo.gl/MQG2k5 Full-time independent stock market analyst and researcher! STOCK MARKET RESEARCH PLATFORM (analysis, stocks to buy, model portfolio) I am also a book author: Modern Value Investing book: https://amzn.to/2lvfH3t More at the Sven Carlin blog: https://svencarlin.com/ Check out Modern Value Investing YouTube: https://www.youtube.com/c/InvestwithSvenCarlinPhD Like Modern Value Investing Facebook page: https://www.facebook.com/CarlinSven Connect with me on LinkedIn: https://www.linkedin.com/in/svencarlin/