Wednesday, April 17, 2013

Value Investing

11:07 AM
Have just finished reading Benjamin Graham's The Intelligent Investor. Here are some more really good quotes regarding his philosophy on value investing, along with my comments on applying this to real estate:

On diversification in equity funds: Investing in index funds (which own all the stocks in the market, all the time, without any pretense of being able to select the "best" and avoid the "worst" will) beat most funds over the long run...[while] the average stock fund, with its 1.5% in operating expenses and roughly 2% in trading costs will be lucky to gain 3.5% annually.

On Over-confidence:--In 1999, Money magazine asked more than 500 people whether their portfolios had beaten the market. One in four said yes. When asked to specify their returns, however, 80% of those investors reported gains lower than the market's. (Four percent had no idea how much their portfolios rose - but were sure they had beaten the market anyway!)
--A Swedish study asked drivers who had been in severe car crashes to rate their own skills behind the wheel. These people...insisted they were better-than-average drivers.
--In a poll taken in late 2000, Time and CNN asked more than 1000 likely voters whether they thought they were in the top 1% of the population by income. Nineteen percent placed themselves among the richest 1% of Americans.
--In late 1997, a survey of 750 investors found that 74% believed their mutual-fund holdings would "consistently beat the Standard & Poor's 500 each year - even though most funds fail to beat the S&P 500 in the long run and many fail to beat it in any year.

On investment advice: If the reason people invest is to make money, then in seeking advice they are asking others to tell them how to make money. That idea has some element of naivete. Businessmen seek professional advice on various elements of their business, but they do not expect to be told how to make a profit.

Trust, but Verify: Remember that financial con artists thrive by talking you into trusting them and by talking you out of investigating them. Before you place your financial future in the hands of an adviser, it's imperative that you find someone who not only makes you comfortable but whose honesty is beyond reproach.

One of the most central concepts of investment proposed by Graham is that of a "margin of safety." In real estate terms, this would mean buying properties at a reasonable discount (40 cents on the dollar is one example Graham gives as a safe "margin of safety" in buying stocks). Here are Graham's comments on the combination of safety margin and diversification:
Diversification is an established tenet of conservative investment. By accepting it so universally, investors are really demonstrating their acceptance of the margin-of-safety principle, to which diversification is the companion.

Those invested solely in stocks and bonds, may want to consider real estate as an investment to help diversify their portfolios, where many of the same investment principles apply as to an investment. For information on buying real estate directly, please contact Home Land Investment Properties at And for information on passive real estate investment through a private real estate equity fund, please contact, or Wendy Ceccherelli for all things real estate: 425.270.7292.

Happy Investing!

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