Becoming a Guru Through Learning From Example

I now understand that the minute the people around you realize you know something they immediately segregate into two groups.

The first, of course, are the cynics. The ones who are always there behind your every saying, quotation and axiom to remind you that we all have bullish ambitions and that maybe you’re just like the rest of us. This is a good thing because these people will both enforce you to think ever so critically and will also always be there no matter what you do, so get used to it.

The second group are your followers. These are the people who will constantly be up your alley asking where the markets are heading, where you think is th best place to invest and what you think of PetroChina.

Then comes the common question, “Should I invest in the market?”. I am reminded of a chapter in Ben Graham’s Intelligent Investor where he endeavored, so scrupulously, to predict the future path of the market. Mind you this comes only a few pages after he clearly states that it is nearly impossible for one to successfully assess what the minds of millions will wake up thinking tomorrow, nevermind months or years in the future.

In 1949 it seems that Graham underestimated the market by a wide margin, while in the 60s he gained slightly more accuracy. In 1972 he underestimated the storm that inflation would play in the buying of valuable securities.

One thing that he did do successfully was manage his wealth “risklessly”. He was a strong proponent of a 50-50 allocation to both common stocks and high-grade bonds. In 1964 he was in dilemma as to whether or not stocks had reached a dangerously high valuation and were thus due to a strong decline. He commented “If the investor is in doubt as to which course to pursue he should choose the path of caution”. He then factored in “We should advise rather strongly against the initiation of a new dollar-cost averaging plan at the 1964 levels”.

What this means for todays market should be considered obvious, being that the goal of the successful investor is to maintain his wealth growing it cautiously over time. Today too we face speculation in the markets. Will the benchmarks rally on for another five years as they did in 1964 or will they decline together with the business cycle as they did in early 1971? We cannot be sure but we should find guidance in the words of one of the greatest investors.

Proceed with caution, whilst previous purchases justify the correction as well as serve dividends for reinvestment. But to start anew seems rather unsettling at this point in time, with both valuations for prices and dividends seeming awfully expensive based on historucak norms.

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