Learn to be true investor

Your personal finances -> Allocating assets

Benjamin Graham, author of The Intelligent Investor: A Book Of Practical Council fiercely urged his students the basic difference between an investor and speculator. The speculator, he says, tries to anticipate and profit from price changes; the investor seeks only to acquire companies (equity) at reasonable prices.

The successful investor, he further goes on to say, is often the person who has achieved a certain temperament - calm, patient, rational. Speculators have the opposite temperament - anxious, impatient, irrational. Graham strongly suggested that true investors can be recognized by their temperament as well as by their skills.

True investors have the following characteristics:

The investors are calm - They know that stock prices, influenced by all manner of forces both reasonable and unreasonable, will fall as well as rise, and that includes stocks they own. They know that as long as the company retains the qualities that attracted them as investors in the first place, the price will come back up. In the mean time, they do not panic.

Warren Buffet, the great investor said: "Unless you can watch your stock holdings decline by 50 percent without becoming panic-stricken, you should not be in the stock market. As long as you feel good about the businesses you own, you should welcome lower prices as a way to profitably increase your holdings."

True investors are patient - Instead of being swept along in the enthusiasm of the crowd, true investors wait for the right opportunity. They say "no" more often than "yes". Buffet says that true investors would be forced to wait patiently until a great investment opportunity surfaced.

True investors are rational - They approach the market, and the world for that matter, from a base of clear thinking. They are neither unduly pessimistic nor irrationally optimistic. They are, instead, logical and rational. So many people feel optimistic when market prices are rising, pessimistic when prices are going down.

Optimists, in general, see no need to do the fundamental research and analysis that would illuminate the real long-term winners because the short-term numbers are so seductive. Undue pessimism, on the other end, motivates investors to sell at exactly the wrong time.
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