Dear Reader,
I am currently reading the book "Security Analysis" by Benjamin Graham and David Dodd.
I think the main message is not that one has to always invest in value stocks. The investing community understands value stocks as companies with low Price/Book, Price/Earnings and Price/Sales ratios from mature industries.
I think Benjamin Graham's message is more subtle. He says that you have to invest with a margin of safety. That is, invest in undervalued by a high margin companies. The undervaluation represents your margin of safety. What Benjamin Graham underlines is that the stock of the same company could be investable or undervalued at one level and non-investable and overvalued at another level.
Almost half way through the book, I never saw that Benjamin Graham say you should not invest in growth stocks. His main message is that "In the short-term the market is like a voting machine, while in the long-term the market functions like a weighing machine". Basically, what that means is that the Efficient Market Hypothesis that the stock market is always right is wrong or deeply flawed. At any time you can find many undervalued securities in the market. Benjamin Graham says that the market always provides us with securities which are undervalued.
This Graham's idea can easily be applied to growth stocks. It was easy to see that Snap Inc.'s stock, the owner of the Snapchat social media application, was undervalued at 5 USD and at 25 USD nowadays its seems less overvalued. Or as Graham says "the stock of the same company could be investable or undervalued at one level and non-investable and overvalued at another level.".
In short, Benjamin Graham states the obvious truth that the stock market constantly misprices securities, but the main message is that one should invest in grossly mispriced companies, since the same companies could become even more undervalued.
Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn, Facebook etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed on the blog are Petar Posledovich's. Petar Posledovich does not guarantee the accuracy of the information presented on this blog and social networks. The information presented is "as is".
Petar Vladimirov Posledovich is not liable for any investment losses incurred by reading and interpreting blogposts on this blog and posts on social networks.
Conflicts of interest: I may possess some of the securities, currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!
Respectfully yours,
Petar Posledovich
1 comment:
I fully agree. But today the stock market is almost at record high. We need to look also at the Cycle theory for example at the Dow to Gold ratio.
Dow to Gold ratio is about 14 trending down to 1 or 0.5. This means that we are in a bear market for stocks and a bull market for gold. Gold to silver ratio was 120 at December, 2019. Not it is at 83 trending down, another bearish signal.
The US dollar adds complexity because of the milkshake theory - since the countries outside the USA have a lot of US denominated debt, then there is a demand for dollars to meet payments denominated in US dollars.
When we add all the toxic derivatives on the off-balance sheets of the big banks, I learned a lot from Ben Graham, but I do not think he had the slightest notion at his time about such an environment we are at right now.
The crowd is now gathering at the Robin Hood platform to try their luck on the stock market casino and the central banks are buying big techs at large.
The danger is lurking, everyone is buying.
We have to ask ourselves - then who is selling:
Warren Buffet is selling airlines and buying utilities, but he has a stockpile in cash.
Maybe it is a bear stock market and a gold bull market, and bonds going nowhere because the central banks are trying to keep the yields low.
The US elections are in November. They can keep the stock market rising slightly, but because it is a bear market, the gold will go to 2 500 USD until the elections.
We actually also see the trend for socialism and the march towards universal basic income. Probably those two financial aids of 1 200 USD dollars will become the first steps in justifying the need to have some basic income, and then such policies can be adopted in Europe as well. We are in unchartered waters.
Post a Comment