Is Benjamin Graham Still Relevant?
Yes, the philosophy of Benjamin Graham on investing is still relevant in the 21st century and will be relevant forever.
This post will share a few important points from his famous book “The Intelligent Investor”. The points will help you to understand why his philosophy is still relevant and will be forever.
3 Points: Why The Philosophy of Benjamin Graham Is Still Relevant?
1. Speculation Is Attractive But We Need To Control Our Emotions
There is a weak part of every investor’s soul that loves speculation or in other words gambling. But in the world of investing, emotions are always dangerous that could cause the destruction of wealth in seconds.
However, Benjamin Graham is not preventing us from speculation. But he believed as an intelligent investor, one should entirely separate the amount for speculation from the amount of actual investing (including accounts).
According to Graham, if we want we can go for one to five percent of our portfolio for speculation, but not more than that. For example, you can use a very small amount of money for day trading (not more than 5 percent).
Again, one thing you need to keep in mind is that Graham himself was not a big fan of things like day trading in the stock market.
In the first chapter of “The Intelligent Investor” book, he even called it “A financial video game”.
2. Market Always Surprises Investors
Nobody really knows whether the market will go up, down, or sideways. Some so-called market gurus try to predict the future overconfidently, but according to Graham, it is not possible the way most gurus try to. Either way, it is not a good idea for investing.
For example, in March 2000, the US stock market boomed & reached its peak of $14.75 trillion. Investors were happy and so-called market gurus started predicting that the market will go up furthermore.
Ironically, all their predictions proved wrong. Till October 2002, the US stock market plunged more than 50 percent of its entire value and dropped to only $7.34 trillion.
Another recent example is the stock market boom of 2020-2021. Because of Covid-19, investors were so bearish at the end of 2019. Even, a lot of investors scooped out their money fearing a big stock market crash.
However, later, all assumptions and predictions were proved wrong. Instead of crashing, the market gave an unimaginable return to its investors.
According to Graham, an intelligent investor should never be overconfident in forecasting the market, instead, he should be calm and respectful toward the market.
3. Safety Is More Important Than Growth
An intelligent investor’s most important duty is to focus on the safety of his wealth. In fact, safety is more important than growth. While investing, we must have to bear some risks, but with proper steps, we can reduce them to a low level.
Some best ways of risk management:
1. Diversifying portfolio: Don’t put all your money into one basket. According to Graham, we can put 50 percent of our wealth in leading common stocks and the other 50 percent in high-grade bonds. Again, we need to keep in mind that while investing in leading common stocks, we shouldn’t put that all money into one or two companies. The diversification should be between at least 10-15 companies minimum.
2. Keep a margin of safety: Buy when things are undervalued. Here, the bear market is the best time to pick godly companies at lower prices. For example, Warren Buffet made billions of dollars from 2008’s financial crisis by picking a lot of good stocks at undervalued prices.