I caught a press conference on the TV recently where Warren Buffett was asked: “Which was the most important lesson that you learned from your tutor Benjamin Graham?”
His answer was:
“The 3 most important lessons I learned were all from the same book The Intelligent Investor - it was written first by Graham in 1949 - they appear in chapters 8 and chapters 20.
The first is to look at stocks as pieces of businesses, not as little items on a chart that move around, not as ticker symbols, not as something that might split next week or next month or something of the sort but rather to look at the business, value the business, divide by the shares outstanding and decide whether you really want to own a piece of that business at that price.
The second one was his commentary about your attitude toward the stock market, that it is there to serve you rather than to instruct you, and he used a famous Mr Market example of that but that attitude is fundamental to making money in stocks over time.
And then the final item he talked about was a margin of safety, that when you buy a stock that you think is worth $10 you don’t pay $9.95 for it because you can’t be that precise in estimating its value so you leave a considerable margin of safety for both what you don’t understand and for the vagaries of the future.
And those 3 ideas which I learned when I was 19 years old have been the bedrock of everything I’ve done since.”
Following those principles has certainly worked for Warren Buffett!
Ian
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