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Gracor Investors

Graham is the wellspring

Value Investing is based on Benjamin Graham’s work on the principles of investing and investor behavior.  The codification of these principles was his quest and these principles are the key to understanding Graham’s work.

To simplify:

  • To Benjamin Graham, experience does not mean being smarter or more gifted.  It means being less irrational.
  • Value Investing is about forming a reasonably confident judgment that you are either buying from a pessimist or selling to an optimist.

Principles of Value Investing

Think Different  In an industry where 80% of professionals do not beat the market they are paid to beat, there is no reason to follow the crowd.  For hope to exist, investors must be less irrational than the crowd and follow methods that the majority of professionals on Wall Street do not use.  Why?  Because Wall Street methods do not produce results.

  • Graham encourages us to follow usefulness.

“True” investors' primary attribute lies in their psychological preparedness for market volatility.  The best evidence of psychological preparedness is when an investor cannot be stampeded out of his/her position.  That is investment transcendence.  The bona fide investor has the same emotional reaction to market volatility as everyone else.

  • Their advantage is that they do not let those emotions drive their process!

Value vs. Price  Consistently relating what is paid for the value attained is a core competence of Value Investing.  For the vast majority of all companies it is true that at some low price, they are investments and, at another, much higher price, they are speculations.

  • Value is determined through careful analysis of business fundamentals, not hope and prospects for the future.

Margin of Safety  A margin of safety renders unnecessary an accurate prediction of the future.  This margin is there to absorb negative unforeseen events.  We demand a “significant” margin of safety because we understand the imprecise nature of value AND we know the manic-depressive market will oblige.  Most importantly,

  • it is the aggregate margin of safety of your portfolio that matters.

Courage comes when your actions are based on principles, your decisions are made through reason, and you know you have prepared.  No individual or team can function for long when their emotions drive the process. 

  • "You are neither right nor wrong because the crowd disagrees with you.  You are right because your data and reasoning are right.  Similarly, in the world of securities, courage becomes the supreme virtue after adequate knowledge and a tested judgment are at hand."