Benjamin Graham is widely held up as not only a great investor, but also a great teacher of investing. It was Graham's guidance that largely shaped Warren Buffett into the stock market legend he is today.
We too can benefit from Graham's wisdom. Below you'll find eight lessons from a speech Graham gave in San Francisco in 1963. Each remains as brilliant today as it was then.
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1. On salesmen and reading the fine print
Since Dec. 31, 2008, the S&P 500 is up 134%. Since Dec. 31, 2007, the S&P 500 is up just 44%. If you were a salesman selling an investment today, which date would you choose to advertise?
Be wary of promises of future success based on past performance. Sometimes they're based on an arbitrary time frame that has no context or relevance to the market today.
2. On bubbles, then and now
Understanding human nature is critical to understanding market movements over the long term. Sometimes we get a bit too excited and lose sight of risks. Other times our pessimism blinds us to huge upside opportunities.
If we accept that the markets will overreact to both the upside and the downside with a cool, non-emotional mind, we can can take advantage of the opportunities that market swings present. Graham agrees, as he points out in the following lesson.
3. On anticipating market cycles (in order to buy great stocks when prices are low)
In other words, plan for both bull and bear markets. When the market drops, don't panic; think of it as your chance to buy low.
4. On stock market "experts" and their predictions for the future
You could argue that Graham's central tenet is that the markets, broadly, are unpredictable. You'll see this theme come up again and again in this speech and in his other writings.
Humility is a great indicator of a true market expert, while hubris is the mark of a novice.
5. Graham would have loved modern index funds for the average investor
He then added wryly:
6. The two conditions required to beat the market
If you don't want to passively invest in index funds -- which is likely what Graham would recommend for most people -- then you must have a strategy to succeed over the long term. Graham's strategy was to focus on value above all else.
How can an ordinary investor apply that strategy? Fortunately, he elaborates on that in our final lesson.
7. How to pick stocks
There you have it. Look beyond the flashy stock-market darlings, find boring opportunities on the cheap, and don't be afraid to dive into the special situations that others avoid. The key to each, as Graham said, is to buy at a bargain.
The article 7 Timeless Lessons for Investing in Uncertain Times originally appeared on Fool.com.
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