I’ll admit that there certainly is more competition for knowledgeable investors today, than in the past. But human nature is still the same. Opportunities exist for the disciplined, dedicated, knowledgeable investors.

  • “Stocks often sell at ridiculously low levels for considerable periods merely because few people know anything about them. The speculator who discovers a stock in this situation does not need to foresee future growth in the company’s earnings. If the stock is selling well below the level which current earnings and position justify, and there is nothing in sight to impair its position in the near future, he may be sure that others will discover it and that in time it will rise to a reasonable price level.”

I’m reminded of a 1955 Senate Committee hearing in which Ben Graham offered up “the mysteries” of the stock market.

But this goes beyond that. All of the focus that goes into earnings growth, profit margins, and Buffett style wonderful businesses, ignores the fact that perfectly not great businesses exist.

And some of those not great businesses can become extremely undervalued (deep value). Mostly, it’s because nobody cares about them. Nobody looks at them. Nobody hypes them on CNBC. Yet, investors make money from them. Because, as Graham said in 1955, “Eventually the market catches up with value. It realizes it in one way or another.”

  • “Perhaps the best sort of speculation, and the kind that is most likely to be successful, is that which regards it as the business management of a fund.”

Ben Graham taught us to treat stocks not as pieces of paper, but as pieces of a business. Carret says you should treat your portfolio like a business too.

It’s an interesting way to look at it: to minimizes losses, maximize profits, and do what’s in the best interest for the long-term success of your “business.”

One way to do this is to “hire” CEOs/management, fund managers, funds, strategies, or advisors that align with your standards and goals and “fire” or avoid those that don’t. And do it in a cost-effective, tax efficient way.

But it also means not taking any unnecessary short-term or catastrophic risks that could threaten the life of your “business.”

Carret specific mentions margin loans, which were ridiculously excessively used in the ’20s to the detriment of many investors. Debt — under right circumstances and in a minimal way — can be a net positive for returns. However, the downside — in excess — can wipe you out.

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That fact didn’t stop people from doing it in the ’20s. It won’t stop people from doing it today either. The draw of higher returns often blinds us to potentially debilitating outcomes. Unlikely things happen often enough that it’s not worth risking your “business” over.

To sum it up: thinking in terms of a business reinforces the idea that any changes to your portfolio should improve your “business” overall.

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