Investment for the Value

The great investor Warren Buffet, which practices the style of “investment for the value” such as developed by Benjamin Graham, thinks that the ideal period to detain a good investment is that in which there is no end; it seems that the study done on the historic evolution of markets corroborates this point of view. Along a period of 70 years, from 1926 to 1996, the yield of 20 years treasury bonds only excelled during a decade that of an ordinary shares portfolio that quotes on the market.

With an average inflation of 3.1%, the average yield of ordinary shares during these seven decades was of more than an 11%, against the 5.2% of the 20 years treasury bonds.

Time also reduces the inherent risks of market fluctuations. The probabilities of loss associated to contracting are of a 24% in a year period.

The risk factor descends to a 1% in 10 years and to o% in 20 years.

Several auto regulating markets and agencies have done studies about the figure of the investor having in mind their variables ages and wealth; these studies indicate that the most successful investors tend to concentrate its investments in few areas and securities. We see then, that it is the concentration, and not the diversification that takes us toward the success when investing, if well this means that the risk is greater than that which the average investor is willing to take.

Investors who make money practice the strategy of “buying and keeping” don’t have any knowledge about the problems inside the market, they are more inclined in cashing dividends than in selling too soon, not letting themselves be influenced by the short term fluctuations of the market.

Another common characteristics of the successful investors are that they invest in companies in which they used to work or in which they have certain amount of knowledge.

Peter Lynch, the very respected and old promoter of the Magellan Fund, of fidelity, has been always in favor of investigating, as a good way of beginning to select an investment in shares, products and services that one usually uses.

However, there is no guarantee that by following a determined method you will have success in your investments. Even if you feel that you are an adventurous investor or if you believe you are a moderate or conservative one, what you must do is to develop a personal discipline and to maintain your particular way of investing unless there is a fundamental reason for changing it.

Greed and fear are the most influential forces that the markets exercises, such as John Mackay wrote in 1841, on his classical site, popular delusions and the madness of crowds. In this site, the author analyzes the emotional phenomenon that surrounds many speculative “bubbles” greed makes us to go after markets that have moved or that stay more than usual in a determined position, this with the eagerness of attaining greater profits.

Fear makes us refuse to buy shares at the lowest quotations of the market, that is, when “blood sheds the streets”, or to try to sell the ones we possess before the perspective of a greater loss. The fear to loose opportunities in a moving market is frequently the cause for buying at the wrong time and price.

Remember that most of the individual or institutional investors have to be by force mistaken in any of the important turns of the market for there to be a greater liquidity on any determined market.

If you want to be a successful investor, you must learn to feel comfortable with the long term planning and to be ready to dedicate time and effort to analyze each investment, that is, not to act according to the advices of others.