Investing on the stock market can be daunting, especially if one considers what we have been through during the latest financial crises which began in 2008 – only the bad news reaches the newspapers, while the good news somehow gets omitted. Did you know that, despite all the bad news, the JSE all share index is up one and a half times since the lows of 2008?
To be a successful investor, you do not need a stratospheric IQ, unusual business insights or inside information. What is needed is a consistent approach within a sound intellectual framework for taking decisions, and not letting emotion rule the process. This takes discipline, courage, patience and consistency.
To this end, Benjamin Graham has been an inspiration to many of today’s great investors –Warren Buffet, who is counted amongst them, read Graham’s book, The Intelligent Investor, early in 1950. And by applying the principles and approach set out by Graham, Warren Buffet has amassed incredible wealth.
Graham, too, was a success investor and portfolio manager in his day, learning his insights the hard way – on Wall Street – where he ran his own investment partnership.
The Intelligent Investor, first published in 1949 was the first book ever to describe the emotional framework and analytical tools that are essential for investment success – and it remains probably the best single book ever written on investing for the lay person. If you are thinking of investing on the stock market, I highly recommend that you get yourself a copy and study it thoroughly.
So what exactly is “investing”? And how does that differ from “speculation”? Graham offers a unique definition for us, which should underpin every decision:
“An investment operation is one which, upon thorough analysis promises safety of principal and an adequate return. Operations not meeting these requirements are speculative.” Just think about that…
In his book, Graham expands on a few core investment principles, which are just as valid today as they were back then:
1.A share is not just a ticker symbol or a number on the screen, it is an ownership interest in an actual business, with an actual underlying value that does not depend on its share price.
2.The stock market is a pendulum that forever swings between unsustainable optimism (which makes stocks too expensive) and unjustified pessimism (which makes stocks too cheap). The intelligent investor is a realist who sells to optimist and buys from pessimist.
3.The future value of every investment is a function of its present price. The higher the price you pay, the lower your return will be.
4.No matter how careful you are, the one risk an investor can’t eliminate is the risk of being wrong. Only by insisting on a “margin of safety” – never overpaying no matter how exciting an investment seems to be – can you minimise your chances of making an error.
5.The secret to financial success lies inside yourself. If you become a critical thinker who takes no stock market “fact” on faith, and you invest with patient confidence, you can take steady advantage of the stock market. By developing your discipline, courage and financial knowledge you can make a success at investing.
At Simonis Storm, we are not only stock brokers, we also provide wealth management services to private clients, many of whom have share portfolios with us. Our investment approach is similar to Benjamin Graham’s – we only consider investing in companies that have a proven track record, strong market presence, likely to continue making profits with strong cash flows and have a superior management team. The price at which we purchase shares is equally as important, patiently waiting for share prices to drop before adding to a client’s portfolio.
Each person’s risk profile and investment return requirements are different, and we take this into account when constructing our client’s portfolio. A less risky portfolio would be biased towards having more bonds or fixed income instruments and less shares, while a more risky portfolio would consist mostly of shares.
Simonis Storm was founded in 1996 to provide financial services to both institutions and individuals. The company is 100% Namibian owned and managed and has grown in stature and has secured agency agreements with companies who are leaders in the financial industry regionally as well as internationally.
James Cumming joined Simonis Storm as head of research in 2012. After qualifying as a Chartered Accountant (CA) in Namibia he moved to Dublin, Ireland, where he worked as an audit manager at Deloitte for 3 years, focussing on the financial services sector and investment funds. He then joined a boutique hedge fund manager in London in 2005, being responsible for operations, risk management, finances and compliance at the firm. He is also a Chartered Financial Analyst (CFA) charter holder.PF