When I first started to pick stocks, I aimed for companies where the share price would rise rapidly. Whilst I had some success with these stocks I also took some big hits with one company entering administration and a couple of others being de-listed. Therefore, when I read a book called The Intelligent Investor by Benjamin Graham I realised how flawed my strategy was. I have now changed my strategy somewhat to align my investments with the sort that Graham would choose. In fact, reading his book has given me a better understanding of what investing really is. I now know that my previous stock picks were not true investments but were highly speculative purchases. From Graham’s analysis of companies I can also see exactly why those stocks were never really going to make me any money.
Benjamin Graham is often referred to as the ‘Father of Value Investing’ and it is his strategy which I am now basing all my stocks selections on. I highly recommend reading this book before starting out with buying shares and I wish I had read it years ago as I would have had a much better portfolio as a result.
The key idea with value investing is to remember you are essentially buying a small chunk of a company and to ensure that you are not paying a premium over the company’s underlying value. This strategy requires a long term view and the stocks should be dividend paying and held for years. Therefore, it makes a great strategy for pension investments as it does not require a great deal of management and the stocks provide a regular income.