Strategies

Having good strategies or plans will help you earn money in the stock market. But here are some great strategies that can maximize your profit.

Basics of Investing

• Investing: An investment operation is one in which, upon thorough analysis, promises safety of principal and a satisfactory return”. - Benjamin Graham

• Thus, the secret to investment riches is to invest when: Price  <<  Value. This is call Margin of Safety

• “A margin of safety is achieved when securities are purchased at prices sufficiently below underlying value to allow for human error, bad luck, or extreme volatility in a complex, unpredictable and rapidly changing world ” - Seth Klarmam

• "Prices tend to fluctuate more than values. Therein lies opportunity”. - Joel Greenblatt

• Buy low, sell high( simple idea of margin of safety).

                                               Compounding 

A thought experiment: 

 On day 1 you are given a penny. The penny goes up in value 100% every day when invested. You want to maximize your money.

• Which path do you take for the next 30 days? 

a) leave the penny invested, withdraw the interest (one penny)          every day               $0.31

b) take $100,000 in cash with no investments             $100,000

c) leave the penny & interest in place for all 30 days  $5,368,709

 Diversification– Removes nearly all idiosyncratic risk, thus minimizes total risk:

• Can be achieved with a portfolio of 20-30 stocks; 

• Holding stocks that is not related; so if one drops it doesn't affect your portfolio as a whole.

• The S&P 500 index is very diversified

Active Investing– researching investments, active buying and selling. 

Passive Investing– An “index” tracks a sector of the market; almost no human involvement

– Most famous example of passive investing: The S&P 500 INDEX FUNDS