How To Invest Like Benjamin Graham?

Benjamin Graham is one of the greatest investors in history. Serious investors still want to follow in his footsteps in their investing journey.

Here we have shared the 6 most important rules of investing, which Graham shared in his book “The Intelligent Investor” and also he followed them to make millions of dollars.

• Diversification of portfolio
• Be greedy when the market is fearful, be fearful when the market is greedy
• Stay away from day trading, think about long-term growth
• Start as a Defensive investor
• Be sure it’s yours before you get into it (No matter are they stocks, bonds, gold, or real estate)
• Nobody knows whether the market will go up or down

Next, let’s discuss each one of them, step by step.

Benjamin Graham’s 6 Most Important Rules of Investing

1. Diversification of Portfolio

Benjamin Graham’s one of the most important rules of investing is diversification. An intelligent investor shouldn’t put his all eggs into one basket. He should diversify his portfolio among multiple baskets, such as stocks, bonds, mutual funds, real estate, etc.

Proper diversification helps an investor to minimize his risks. For a smart investor, the security of his wealth is more important than making a profit.

Therefore, Warren Buffet once quoted “There are two rules of investing, rule number one – Never Lose Your Money, rule number two- Never Forget Rule Number One.” 

2. Be Greedy When The Market Is Fearful, Be Fearful When The Market Is Greedy

Benjamin Graham’s rule number two is margin of safety. Always try to pick stocks, when they are undervalued. Therefore, he always preferred buying stocks in a bear market, rather than a bull market.

Usually, armature investors are afraid of a bear market because they can’t understand that it is the best time to pick good companies at undervalued prices. At this time, the risk of losing money remains relatively lower than in the bull market.

During the 2008’s financial crisis when most people were afraid, great investors like Warren Buffet made millions and billions of dollars using this simple strategy. 

[Tip: Always Follow The “KISS” Principle, Which Means “Keep It Super Simple”]

3. Stay Away From Day Trading, Think About Long-Term Growth

Benjamin Graham believed, an intelligent investor should stay away from things like day trading or short-term trading. He never supported day trading.

According to him, day trading is just a highly risky financial video game. No matter how much money you make, it is nothing different from gambling, loss of wealth is inevitable in this approach.

So, invest with long-term goals. It is easy and quite safe.

4. Start As A Defensive Investor

Being a defensive investor is always the best approach for a beginner.

According to Graham, a defensive investor should divide his entire portfolio between high-grade bonds and leading common stocks. The easiest ratio could be 50-50.

You can follow this link to read Benjamin Graham’s definitive guide to becoming a defensive investor.

5. Be Sure It’s Yours Before You Get Into It

Just buying stocks, bonds, mutual funds, and real estate will not make you rich or an intelligent investor, unless you understand what you are doing. For example, if you are investing in real estate, you need to have proper knowledge of it.

Just buying a piece of land will not make you a real estate investor. Similarly, buying a few stocks will not make you a good stock market investor.

6. Nobody Knows Whether The Market Will Go Up Or Down

An intelligent investor should never be overconfident to forecast the market. In the third chapter of the Intelligent Investor book, he mentioned that the market always surprises investors with unexpected results (good or bad).

For example, investors were so bullish in March 2000. At that time, the US stock market’s total value reached up to $14.75 trillion.

So-called experts predicted that the market will go even higher. Just 30 months after, by October 2002, the market plunged over 50 percent. Till October 10th, 2002, the market valuation dropped to only $7.34 trillion.

An intelligent investor should be respectful to the market and never try to predict or bet on it overconfidently.