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View Full Version : Benjamin Graham's two rules of investing.


Steve
03-02-2011, 04:11 AM
Investor Benjamin Graham, had experienced two huge economic losses during his investing career that led him to create his two rules of investing.

Rule #1 was: Don't ever lose money.
Rule #2 was: Don't forget rule #1.

This investing philosophy led him to two approaches when he considered purchasing a stock.

The first approach was to only purchase stocks that were attractively priced at 2/3 the value of the company's net asset value.

The second approach was to focus on companies that had low price to earnings ratio stocks.

With these two stock purchase approaches and his two rules on investing, Benjamin felt it would give him a margin of safety in his purchase. This margin of safety would help protect him in the event of a decline in stock price.

Finding companies that were priced at two/thirds of their net asset value was difficult to do during bull markets, but more prevalent during bear markets. Waiting around for the next bear market, at times, may be unreasonable and this led Benjamin to then switch to more of his second approach of looking for companies with a low price to earnings ratio stock.