CHAPTER 7Investing in Stocks (I): Foundations and Principles

We know that we have to invest in real assets and that shares are the best option. We also know that we can invest in shares through index funds, semi-passive or fundamental funds, and actively managed funds. And finally, there's also the option of investing directly in stocks.

It's a risky business trying to systematically outperform the indexes; history says as much. Yet some of us are either sufficiently arrogant, deluded, or audacious to take on the challenge. After all, we all think we are better drivers than the rest.

This part of the book is aimed at those daring enthusiasts or professionals prepared to take on the indexes at their own game. Flying in the face of history and current trends as they remorselessly shift towards passive management.

Investing in stocks is not easy. You have to buy what nobody else wants and sell what everyone else is trying to buy. It's a fight against our very nature. An endeavour that can be hugely rewarding in the long term, if things work out, but that will test our wits on a daily basis. But we are not powerless, as I will try to explain. Indeed, it is an art to which some of us have dedicated our professional life and where I may add most value.

FOUNDATIONS AND EXPERIENCE

Graham

Although they might not know it, nearly all value investors started out life investing like Benjamin Graham, Columbia University professor and ‘creator’ of value investing. Until Graham arrived ...

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