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Can one make money as an active stock market investor?

In his book, “The Intelligent Investor”, Benjamin Graham describes an Aggressive Investor as an enterprising security buyer who desires and expects to attain better overall results than his Defensive or Passive companion. According to Graham, it is important that the enterprising investor starts with a clear conception as to which courses of action offer reasonable chances of success and this may include the following;

  • Trading in the Market. This means buying stocks when the market has been advancing and selling them after it has moved downwards.
  • Short-term selectivity. This means buying stocks of companies which are reporting or expected to report increased earnings, or for which some other favourable development is anticipated.
  • Long-term selectivity. The emphasis here will be on an excellent record of past growth which is considered likely to continue in the future. In some cases, also the “investor” may choose companies which have not yet shown impressive results but are expected to establish a high earning power later.

According to Benjamin Graham, Stock Trading is not an operation, “which on thorough analysis” offers safety of principal and a satisfactory return. In his endeavour to select the most promising stocks, the investor faces obstacles like human fallibility and competition. He may be wrong in his estimate of the future while the current market price may already fully reflect what he is anticipating. Overall, there is a possibility of outright errors.

Graham then comes up with a conclusion that: To enjoy a reasonable chance for continued better than expected results, the investor must follow policies that are (i) inherently sound and promising and (ii) are not popular on the market.

Piggy believes that the answer lies in developing a sound investment policy and strategy over time. The stock market has various possibilities of achieving better than expected results. There is a huge list of securities from which a fair number can be identified as undervalued by logical and reasonably dependable standards. Here are some of Warren Buffet’s investment principles that one can build on;

1. Invest in what you know

2. Before buying a stock, list the criteria

3. Be aggressive during tough times

4. Don’t worry about the day to day market movements

5. Buy Buffett’s stocks

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