Hello friends, in today’s article we see chapter 8 of the intelligent investor. Investor and market fluctuations, this chapter explains how investors behave and also the market. Warren Buffet(the world’s greatest investor of all time says) ” In intelligent investor book, teach me the two lessons, in chapters 8 and 20.” So chapter 8 of intelligent investors is the most important chapter of all time in Value investing.
previous chapter: Click here
Investor and Market fluctuations:-Intelligent Investor: Chapter 8
In this chapter, the author says there are two ways to make a profit in the market.
When you make money, you buy a cheap price of stock with a great company. It is the only way you can make money with our value investing philosophy.
When you make money, you time the market.
This job is horrible because you make a little profit of 100 times but you lose a single profit more than the value of 200 times.
So most of the time when you try to time the market,
you go to the speculation side, and the most interesting thing is that you think, you are doing the investment instead of speculation.
This is also called fooling yourself. (Intelligent Investor: Chapter 8)
the author gives us some pointers to remember about the market, they are as follows
When the market goes up:-Intelligent investor: chapter 8
When the market is going up, you are very happy and in that flow of happiness you lose control over yourself,
so the author gives us three important points to ask ourselves about the stock, they are as follows
- Should you sell now? If you ask this question, you get your answer to that.
- should you curse yourself for not buying more, when the price was low?
- Should you buy more now?
This type of question asks you yourself if you get the right answer this answer depends on your behavior and your philosophy.
In my opinion, when you try to sell this stock ask yourself if it’s important now to sell for your financial circumstances, and also the company’s financial circumstances and management.
After this Benjamin gram gives us the famous concept called the Mr. market, let’s see it in detail.
Mr. Market:-Intelligent investor: chapter 8
The author gives us the market is a living thing, and they have human behavior. Considering this concept author gives us some pointers to handle the Mr. market, which are as follows.
- Bipolar Disorder: Mr. market has a disease called bipolar disorder, in this disease Mr. market is happy sometimes and sad sometimes. This disorder is very much harmful to the investor. So this happens with the market at that time you can ignore the market for your protection.
- Mood Swings: Mr. market has two types of mood swings, one is good mood swings and other is bad mood swings, and they want you to behave like that. (Intelligent Investor: Chapter 8)
- Ignore Mr. market: To ignore Mr. market, you have to be very disciplined, and When you want to deal with the market. do when their mood is good, ignore when they have a bad mood.
- Make him your servant: You have to make Mr. Market your servant, not you the servant of Mr. market, This you can do only by ignoring Mr. market.
So dealing with Mr. market you have to control the following things
- Brokerage costs
- ownerships cost
- Tax bills
- Own behavior
Value investing means controlling your own behavior, If you can’t control the above point you have to the Index fund Investing daily month on month.
this also gives you the best return in the long run. (Intelligent Investor: Chapter 8)
So the author gives us the same point on controlling their own behavior, they are as follows
- Our brains are designed to identify patterns: So many people do trading by analyzing the charts of trade and try to identify the pattern by using applied mathematics.
- Don’t check the value of your portfolio frequently: for this, you can consider the portfolio as your house.
- For this purpose you can follow three things: 1) Dollar-cost Averaging 2)Rebalancing 3) signing the investment contract. An investment contract is given in this book, you can see and understand the deep of that contract.
- Tax benefits: For this purpose, you can do the Index fun Investing, is this the best option for the tax benefit? (Intelligent Investor: Chapter 8)
Following this advice you can understand how the market fluctuates and what to do with investors, and also you have to understand the Mr. market.
This is all about chapter 8 of the intelligent investor.
to visit the book summary of one up on wall street book: Click here
another financial crisis lesson from 2008