Benjamin Graham’s Investment Principles

Legendary Wall Street analysist, Benjamin Graham sums up his investment philosophy by saying that an intelligent investor must be "businesslike" in approach. Investing in shares in a company is just like owning a share in a business enterprise and the investment must be approached as if one were buying a business, or a partnership in one.

Warren Buffett has attributed much of his success to the investment philosophy of Benjamin Graham

There are four guiding principles for Graham:

1. Know the business

The investor needs to become knowledgeable about the business or businesses carried on by the company in which they propose to invest – what it sells, how it operates, what is the competitive environment, what are the threats and opportunities, the strengths and weaknesses.

An investor who bought a fruit shop, or a shoe factory, without investigating these things, and knowing them, would be foolish. The same applies to share investment. An investor who does not understand the business should not be investing in it.

2. Know who runs the business

An investor who cannot operate the business for himself or herself, needs a manager. This is the position of the average share investor, who owns a share of an enterprise that is run by others.

The owner of a business in this position would want a manager who will manage the business competently, efficiently and honestly. The share investor should not be satisfied with less. Unless the investor believes, through sound research, that the company is managed efficiently, competently and honestly, in the best interests of the shareholders, the investment should not be made.

3. Invest for profits

An investor would not normally buy a business that did not, on proper research, appear to have reasonable expectations of producing good profits over time. Share investors should take the same approach and buy, as Graham says, "not on optimism, but on arithmetic".

4. Have confidence

Graham encourages investors to properly research their investments and, if they believe their investment judgment to be sound, to act on it. He cautions investors in this position against listening to others.

"You are neither right nor wrong because the crowd disagrees with you. You are right [or wrong] because your data and reasoning are right [or wrong]."

In 1949, Graham wrote the Intelligent Investor, considered the Bible of value investing.

Warren Buffet - Greatest Investor of All Time

Warren Buffett also known as "Oracle of Omaha", is Chairman of Berkshire Hathaway and arguably the greatest investor of all time. His wealth fluctuates with the performance of the market, but for the last few years he has been reported to be worth over $30 billion, making him the second richest man in the world. (Bill Gates still the richest man).

Buffett is a value investor. His company Berkshire Hathaway is basically a holding company for his investments. Major holdings he has had at some point include Coca-Cola, American Express and Gillette. Critics predicted an end to his success when his conservative investing style meant missing out on the dotcom bull market. The dotcom crash had once again proved that he is still the winner in investment and Buffett's time tested strategy proved successful.

If there is one theme that continually runs through the public statements of Warren Buffett it is the principle that investor should only consider for investment companies with managers of competence and integrity.

How we earn profits from shares?

There are two ways for shareholder to benefit from the profits of a company, capital appreciation or dividend.

Usually, a company distributes part of the profit it earns as dividend. Say a company earned a profit of RM 10 million in 2004-05. It keeps half that amount within the company. This is used for a variety of purposes -- buying more machinery, land or raw materials, building a new factory or setting up a new office. It could even be used to repay loans. The other half is to be distributed as dividend.

Assume the company has 10,000 shares. This means half the profit -- i.e., 5 million willd be divided by 10,000 shares. That means each share will earn RM 500, which will be declared as RM 500 per share. If you own 1000 shares of the company, you get a cheque of RM 50,000 (100 shares x RM 500) from the company.

For the case of capital appreciation, the share holder will buy shares in lower price and sell it when the price goes up to at least 10-20%. No income tax will be charge on capital appreciation.

What is Shares?

There are a number of different shares in the market, including preference shares, bonds, and gilts but the most popular type is the ordinary share which represent ownership of a company.

A person who buy shares, also known as equities or stocks, literally become a part-owner of that business. If, for example, a ABC Plc has 100,000 unit of shares worth RM1 each and you buy RM1,000 of shares, you own 1% of the company.

Companies do not have to list on the stock market to issue shares. Many businesses start life with friends and family as shareholders. These businesses are called unlisted firms and their shares are often referred to as ‘unquoted’.

Once a company decides to raise money from the general public it is called a Berhad and is a ‘listed firm’. Its shares are then referred to as ‘quoted’ or ‘listed’ on the stock market.

There are 646 shares listed on the main board of Bursa Malaysia, 268 on second board and 107 on Mesdaq in till year end 2005, from big household names such as BAT, Maybank and Petronas to smaller businesses like technology company.

As a shareholder you have a say in the company’s affairs by voting at company meetings and, of course, the ability to share in its fortunes. If the company does well, the value of your investment should rise but if it does badly, you could see your shares fall in value.

Hope this will provide a beter understanding of share market. Do share your understanding on your perspective.

Why shares?

Whether its retiring early, saving for the childrens’ education or paying off the mortgage, everyone has dreams they can achieve by saving.

But what is the best way to achieve these goals? Should you leave your money tucked away in the bank or plough it into the stock market where the potential for strong returns is greater but the chances of losing money is higher?

Share ownership has become so popular because history has proved that over the long term, shares produce far better gains than other assets such as cash, bonds or property – even if they fall sharply in the short term.

How have shares done this? Its all down to the direct link shares have with company profits and the strength of the economy.

~ From London Stock Exchange

SUN TZE ! Art of War

Sun Tze - The Art of War is definitely a text I take into consideration in modern business and management theory. Eastern cultures have already absorbed these concepts to be effective and successful in the business market.

I first realized how relevant this text was in every day life as I am often involve in share market investment. Most competitive business came to be as a form of safe and civilized combat. Compete in this business world, is a battle of armies. All use tactics and theories described in Sun Tze.

Today, I take theories from Sun Tze and local business concepts to excel in my judgments on investment. However, I believe that success comes from being resourceful and adapting to any situation that you are presented with. Make good judgments from that which you have learn in the past but be prepared to take calculated risks to break new ground and achieve anything.