8 big ideas in ‘ A Conversation with Benjamin Graham’

This post has my personal notes about the big ideas in the article ‘ A Conversation with Benjamin Graham’.

1. Common stocks increase in value and price over the very long-term but are subject to irrational and excessive price fluctuations in both directions because of hope, fear and greed.

2. The stock market is a place where a lot of time and money is spent on doing things that cannot be done well.

3. Institutional investors should basically invest in index funds.

4. The individual investor has a greater choice in choosing stocks than the institutions.

5. The individual investor should keep at least 25% in stocks and at least 25% in bonds and should increase these allocations depending on which asset class is cheaper.

6. He should have a reasonable profit objective-50% to 100% to be achieved in 2-3 years and if he does not make them then he should sell.

7. Do not engage in elaborate techniques of security analysis to find  superior value opportunities.

8. There are two simple techniques that can be used:
a. Purchase of common stocks at below net current asset value(NCAV)

b. Buying groups of stocks at

  • TTM(trailing twelve months) P/E less than 7
  • Dividend yield of greater than 7%
  • Book value more than 120% of price.

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