the intelligent investor medium

Intelligent Investor: Chapter 11

November 12, 2020 by Laxman Sonale 5 Comments

Hello friends, in today’s article we discuss the Security analysis for Lay(common) Investors i.e chapter 11 of the intelligent investor. In chapter 11 of the intelligent investor, Benjamin gram gives us the Four elements to consider for buying stocks. That element as follows

Previous Chapter 10: Click here

4 Element to make decisions:-Intelligent Investor: Chapter 11

Company’s general long term prospects
Quality of its Management
Financial strength and Capital strength
Dividend Record

let’s see one by one

Companys general long term prospects:- Intelligent investor: chapter 11

to know about the company you have to ask two sentence

How did the company grow?
Where to come profit?

and also check the company’s acquisition and also OPM(other people’s money). If a company depends on other people’s money and they acquire other companies. This type of company does not grow well in the future, and If it depends on other people’s money, they are taking the debt on the company. Also, check the customer range of the company. if the customer is less or minimum then don’t buy the company. (Intelligent Investor: Chapter 11)

If the customer is more and maximum, then that is a good sign. Also check the good competitive advantage like coca-cola, Gillet, etc. Check the net income of the company and revenue with constant earning increases over the past 10 years. 10% is good constant earning before tax and after 7% is good.

If a company invests in Research and Development, for the future product that is a good sign for the company. Most important if the cash flow operating is negative consistently and cash flow of financing activity consistently positive then leave the company. Because this type of company taking the debt on the company. (Intelligent Investor: Chapter 11)

Quality of its management:

Management is the core of any company, so you have checked the management.

Management should be honest and complete the promises of investors and customers. you can see the company record of management and his promises, and also they are accepting the mistake and take the responsibility to handle it. And also check the stock issues, If the stock goes higher and goes down quickly is a bad sign, management has to maintain the P/E ratio. That ratio is not more than 16. (Intelligent Investor: Chapter 11)

Financial strength and capital strength:

each and every company requires finance, so you have to check finance also. for this you can do this.

You can check the Owner earning, this may be 6-7% increases consistently. also, check the Debt to equity ratio, this ratio is 1 not more than that. And you have to include in-dept called as preferred stocks. and also check the Interest coverage ratio, this may be 4 is a good sign. (Intelligent Investor: Chapter 11)

Dividend Record:

If you want to make an investment, in the long term by using compound interest. Then you have to check the dividend record. If the company has the computation record then you check the company outperformance from the computation. If this is not happening then the company wastes the investor cash, this type of company has to give the dividend. (Intelligent Investor: Chapter 11)

You have to check if the company doing the publicity of the stock split, then this type of company fools the investor and wastes the money of the investor. if the company buys back the share is a good sign of the company when they are cheap. if a company buys shares at is a higher price then they waste the money. Check for the dilute diluting if this happens stop this.

If you check these 4 elements of security analysis. you get good company,

This is all about the Security analysis for common( lay ) investors.

To visit the value investing website

Next Chapter 12

Intelligent Investor: Chapter 8

November 10, 2020 by Laxman Sonale 12 Comments

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.

Pricing:
Timing:

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
expectations
Risk
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

Advice:

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

Next Chapter 9

The Intelligent Investor: Chapter 2

November 6, 2020 by Laxman Sonale 1 Comment

Hello friends, In Today’s article we discuss chapter 2 of intelligent Investor. In chapter 2 of intelligent investors we The Investor and Inflation.

Previous chapter 1

The Investor And Inflation:-The Intelligent Investor: Chapter 2

In this chapter Benjamin gram discuss What is the inflation and how inflation effects the investor and it’s an investment, as well as Intelligent investor how to beat inflation and get a good return from the investment for that purpose Benjamin gram gives some advice for Intelligent Investor, They are as follows:

Money Illusion:-The Intelligent Investor: Chapter 2

Money illusion is the type of money trap in which we lose the value of money and can’t get it back. Let’s understand the concept.

Money has some value, but the value of money is decreased by inflation. let’s take one example of Geeta. Geeta has money of 1 million in his bank account for one year.

In that year inflation rate rises up to 7% and you know bank returns between 4 to 5 %. So she gets a return of 4% but the inflation is 7% so they lose the money of 3% of all money,

This loss is called the money trap and also called the money illusion.

read more about money illusion: Click here

Gold as an Inflation hedge:-The Intelligent Investor: Chapter 2

Gold is metal and so it’s likely metal. So in our society gold has its own value.

It fully depends on the demand and supply so its supply is very poor. so demand is more for that reason it’s going to be raising its price.

So for that Gold, sometimes hedge the inflation, But most important is that not anytime hedge the inflation by gold. So putting money in the gold is sometimes is good decision for the security of money but it’s not called an investment. (The Intelligent Investor: Chapter 2)

You can put money in the gold but you have to check to do diversification and found out the minimum charges that the company gives to you for that.

Real Estate as an Inflation hedge:

Real Estate can be the best for the inflation hedge because when inflation rises you can raise the rent of real estate.

But you have to buy the right property, right time, and right place, by considering this you can put money in real estate to hedge inflation. But you have gained knowledge of real estate and do that investment for an inflation hedge.

Real Estate Investment Trust:

This is the type of company that invests in real estate so you can buy its company share. But it’s as risky as other companies but it has good management which has a good knowledge of real estate investment. You can invest in the company to hedge inflation.

This above is some advice given by Benjamin gram( warren buffet’s mentor). so if you follow this advice you will be going to hedge the inflation. (The Intelligent Investor: Chapter 2)

the book summary of one up on wall street book: Click here

Next chapter 3 of The Intelligent Investor book