Thursday 25 April 2013

Purpose


Purpose

This is a blog about investment not speculation.  For an adequate definition of the difference between the two, I will use Benjamin Graham’s summation in his book "Security Analysis" :
“…An investment operation is one which, upon thorough analysis promises safety of principle and an adequate return.  Operations not meeting these requirements are speculative…”

This does not mean that losses will not be made, you will make mistakes in your analysis, companies will disappoint, either through their own failures or from events outside of their control.  With this in mind it is best to eliminate two types of companies from the universe of quoted companies that you will be screening:

Banks – their method of operation, how they make money and disclosure is far too opaque to enable you to sensibly analyse a value proposition.
Insurance companies – They intentionally expose themselves to events outside of their control, that have the potential to materially affect their financial well being.

Owning shares in those companies, because of the factors mentioned, is more akin to speculation than investing.  All other companies are available for screening and analysis, to determine whether they meet strict criteria for inclusion in your portfolio.
The journey of investing should be both profitable and enjoyable and add to your understanding of an increasingly complex world.

  

 

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