Prelude

Graham’s book on the most basic principles in investing is probably the most infamous book in the segment. Originally the book was published in 1949. The fact that contents of the book have been, and continue to be, relevant to this day, is deeply fascinating. I have been meaning to read this publication since the first year I started researching investing but never got around to it. What better time than now, right? It’s interesting to ponder the smaller details that have started to disappear since publishing from more recent investment literature. These days everyone is in a hurry and the possibility of fast gains are more attractive than ever before. This book is more concentrated on deeper analyses and more extensive strategies.

It has become a repeating pattern to see mentions of fundamental analysis or premeditated procedures in basic educational investment articles etc. I’ve encountered my fair share of them, and the point is extremely valid. In my experience, a quick article or guide doesn’t do justice to the actual significance of extensive research when starting out and picking stocks at first. I know that from experience. This book, on the other hand, doesn’t have the same effect. I actually started to attain more interest in the very fundamental aspects of investing. Perhaps, the amount of time spent with a source of data is directly correlated to the impact of one’s own interpretation on the significance of the matter.

A while back I began to notice a form of clarity developing in terms of my future goals. I decided to incorporate more investing into my life strategy. Not necessarily traditional investing in stocks or funds exclusively but experimenting with more deviating channels for investing. One example could be startups, or more business-oriented investing in general. However, diversification is one of the most important rules in investing, and normal stock market investments are a great diversifier. In addition, companies can play the investment game as well. Having previous experience, even from only a small-time consumer investors perspective, is vastly beneficial if, and when, an opportunity arises to invest company assets in the future.

Value Investing, What’s That?

The fundamental thought behind this type of value focused investing is that the volume unreliable emotional decisions are kept to a minimum. “When stock experiences rapid price growth, it can diminish just as rapidly”. This was a mind-opening realization. In order to even begin exercising intelligent investing, this sort of mentality is key to making it past the front door. As a side benefit, this also develops patience and emotional control. I can come up with a few reasons why I’d fit this more thorough approach to investing. I like to control my actions with rational thinking, and I usually want to stay away from more mainstream trends. The idea behind staying ahead of trends when it comes to investing is that being an early bird in the hunt for bargains is always the most preferred position. Once a share’s price trendline starts to diverge substantially from its estimated value trendline that’s an effective indicator when to start selling.

In theory, running extensive background research on potential invest-worthy corporations doesn’t seem complicated, just onerous. Doing it in practice and benefitting from it is a whole nother story. Finding information on publicly listed companies is as easy as just hopping on Google and searching for anything, really. Management teams and financial records, upcoming deals and possible complications. This intel is surprisingly easy to dig up, especially since it’s basically customary to include a page dedicated for investors on public companies’ websites. The problem occurs when trying to decode and fathom all the data. Possibly, it would be best practice to get in touch with someone who’s experienced in this sort of data analysis.

Fundamental Analysis is a Tool, Technical Analysis is a Gamble

This method of determining whether a stock is worth purchasing is called fundamental analysis. Nearly the entirety of this book was based on this method of analysis. Another option would be technical analysis. It’s more focused on monitoring short-term share price fluctuations and trading volume. A few years back I would’ve described myself as an agile strategist, hence why I was so interested in trading. For those unfamiliar with the term, trading is a kind of investing strategy where technical analysis is used as a guide to pretty much every trade. Trading is usually associated with fast-paced buy and sell orders relying on small dips and rises in share price. Small rises of even under a percent, paired with substantially large buy orders result in relatively prosperous profits. Now considering, with regard to time, these transactions can be executed even hundreds of times a day, it’s no surprise trading has attracted quite the audience.

Naturally, with high reward comes high risk. In addition, a trader relies solely on historical data and predictions, and as we all know, predicting the future is not too reliable. I suppose my personality has been changing, bit by bit, over the years. Anyway, fundamental analysis is the method I’m more intrigued by. Also, the thought of being immune to emotional stimuli is always interesting. The stock market has a lot to do with people’s tendency to react to events with emotions, only being intensified by the societal aspects that are included in the trading community.

It’s well known that one should never let emotions affect decision making when it comes to investing. And I believe this factor is commonly acknowledged, superficially at least. The perfect example for acting on emotions would be selling shares when prices dip even the slightest bit. I recognize my younger self in the example. When starting out it’s always so intense executing the first transactions. These days I feel I’ve begun practicing calmness in situations like the aforementioned. Extremely beneficial, I must say.

Sudden Value Degradation and How to Counter It

Earlier I mentioned the superficiality of the general investor population comprehending emotional control when it comes to investing. What I meant by that is, there’s an interesting phenomenon that can clearly be seen nowadays, especially around social media. It’s all about the collective power of an easily manipulated demographic, young people in social media. That’s exactly what happened with GameStop a while back. R/wallstreetbets decided they didn’t like that a few powerful people were convinced that GameStop was facing its demise and got thousands of people to buy their stock which resulted in an explosive share price rise. By the end of this endeavor, people were still jumping on the illusive bandwagon which was making everybody serious amounts of money because of the sudden rise in stock price. This particular bandwagon was illusive because of the very anomaly I’m writing about, over-priced shares.

GameStop had a value significantly lower than the actual price it’s shares were selling at. Soon the value, or the lack there of, caught up with demand, which induced the plummeting of share price. This had thousands of people losing money, just because they weren’t fully aware of the nuances of the situation. This was just a lengthy, extreme example of an event which occurs repeatedly in the stock market. To prepare for this, it’s foremost important to be aware of the concept itself. And secondly, to be cognizant of the company’s actual value, even if it countervails the masses’ direction. Yet another reason why I’ve started to appreciate a fundamental approach.

Interestingly, there’s an upside to everyone being stupid with the stock market, bargains. Emotions still drive gullible investors to the opposite direction, not buying more but selling and fast. These usually are accountable for sudden unexplainable dips in share price. The goal is to know the company’s true value and react accordingly in unexplained occurrences. This type of strategizing always gets me fired up.

The Great Conclusion

It is now time to conclude this surprisingly extensive reflection. I have to admit, a lot of it was just actual facts routed through my thoughts, not genuine reflective learning, per se. However, in this context I’d deem this more beneficial for myself, and conspicuously for anyone else who might read this. A thorough journey through theoretical learning. As for the book, I believe the basic ideas are invaluable for current times and the future as well.