Posted by calvintaneng > 2015-01-17 00:54 | Report Abuse

Another Very Excellent Article.

At The Very Core of Ben Graham's Investment Criteria is "Margin of Safety".

He needs a 30% to 50% Discount From NTA or Working Capital For A Stock To Qualify As An Attractive Investment.

These bargains usually emerge during low points in the market when sentiment is very bad. And it takes a lot of courage to buy them.

Why do they become bargains? Or How Bargains Come INTO EXISTENCE?

Answer

1) Current Earnings POOR (Currently disappointing results.)

2) Immediate Prospects POOR (Protracted neglect or unpopularity)

And The 2 Tests To Determine Whether A Stock Is A Bargain?

Test No. 1

Estimate Future Earnings

Do these Stocks Have A Future? If no future like sunset industries they should be discarded. Examples are horse carriages and horse whip. They become obsolete at the advent of the motor car.

And If They Do Have A Future, what are their future earnings?


Test No. 2

What is The Net Net of The Existing Business?

All Its Lands, Factories, Motor Vehicles, Inventories, Goods, Cash in Hand, Cash in Bank, And All Things Tangible That Can Be Valued & Sold At Cash. Then minus all liabilities to arrive at its Net Net core value.


The Interesting Observation is. These bargains exist in ALMOST ALL market levels.


Calvin comments,

In other words, THERE IS ALWAYS BARGAINS IN THE STOCK MARKET IF WE DO OUR RESEARCH CAREFULLY.

These Stocks Are Depressed BECAUSE They Have Real or Perceived PROBLEMS.

POOR EARNINGS

POOR CURRENT PROSPECTS.

So we MUST NOT LOOK at the current moment IN OUR APPRAISAL. WE MUST LOOK AT ITS FUTURE PROSPECTS. AND ALSO ITS CURRENT ASSETS. ITS NET NET.

By So Doing The Chances for Loss is Minimized But The Opportunity For Profit Will Be Immense.

SO THE MARGIN OF SAFETY IS REVEALED HERE.

And None Summarized it better than Ben's Best Disciple Warren Buffet whose famous words are

RULE NO. ONE

NEVER TO LOSE MONEY

RULE NO. TWO

TO REMEMBER RULE NO. ONE. THAT IS, "NEVER TO LOSE MONEY"

Posted by haikeyila > 2015-01-17 09:57 | Report Abuse

bear in mind that a lot of strategies touted for markets like US do not work for bolehland bursa. You and I know why. Buffet and Graham could go broke if they invest in Bursa, lol.