1. Think Like an Owner
When you purchase a stock you are purchasing an “ownership interest” in that business. That may seem self-evident, but many people buy stocks thinking only of the price and hoping they will be able to sell one day at a higher price. They don’t think about the underlying business.
You can simplify matters and provide some much-needed mental discipline when you think like an owner and apply business like principles to your investing.
Think about whether the business you are buying into is a sound, profitable business that is likely to succeed in many years to come.
Think about whether it is available at a reasonable price. Don’t expect wild profits but consider the normal growth in value and dividend payments that would be expected in the ordinary course of profitable business.
2, Margin of Safety
One of Graham's most famous ideas, “Margin of Safety”, is the gap between the price paid and the inherent value. Investments can go wrong at times, leading to losses. The concept of the “Margin of Safety” mitigates the chances of incurring catastrophic losses. Investing, inherently, is a form of betting on an uncertain and unpredictable future. However smart an investor or analyst may be, he or she is bound to make mistakes. Miscalculations are a common feature of the research exercise. The higher the margin of safety, the lower the chances for losses.
3, Mr. Market
Another famous contribution of Benjamin Graham to the literature of value investing is the idea of "Mr. Market" - an emotional and irrational partner who offers to either buy you out or sell you his share every day.
Assuming you have entered at an attractive price, you can ignore the crazy price fluctuations knowing that the underlying business is sound and just collect your dividends.
If you are patient, one day he will give you an attractive and cheap entry point. And likewise one day he will give you an attractive and expensive exit point.
4, Character is Important
Having a strong mindset and a strong character is important in investing.
Investing requires more than just your brain. It requires the fortitude to experience declines, the patience to wait for the market to move, the courage to hold on and the wisdom to ignore the chattering noise you hear in the financial news.
5, Be patient
One of the key differences between investors and speculators is time.
Investors know that gains come with patience and they come with time. The investor’s goal is not to make quick money on price appreciation. Rather, it is to acquire sound companies at a good price and hold them over the long term.
