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Old July 29, 2003, 10:31 AM
Dien Rice
 
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Default Old investment techniques - that work

Hi Anonymous,

> If it's the latter, how could something that
> old apply in today's market - what with the
> advent of technology changing the landscape
> and all.

I mentioned not long ago that for me, the way I "woke up" first to financial knowledge was through researching stocks.

When I decided I wanted to learn about stocks, the first thing I did was go to a bookstore and flip through a whole bunch of books on stocks. I came across this interesting text book. In it, they reported on some researchers who had tested a whole bunch of methods against each other, to see which worked the best. They tested technical analysis, the method of Benjamin Graham, and so on. (I think this research was done in the 1980s.)

Which did best? Of the techniques they picked, the one that consistently beat the market was the approach taught by Benjamin Graham. His approach to analyzing and investing in stocks was published in 1949 in his book, "The Intelligent Investor".

Now... Benjamin Graham was one of Warren Buffett's teachers and mentors. Warren Buffett's approach to stocks can be said to be modified Benjamin Graham approach. Warren Buffett is known as the most successful stock market investor in history. Coincidence? I think not.

(Benjamin Graham's approach is better known as "Value Investing.")

When it comes to stock market analysis, there are a lot of silly theories out there which simply don't seem to work. Not only that, many seem to even be irrational, more like looking at a horoscope than doing rational analysis. That's why such a truly rational approach (like the Graham/Buffett approach) can still have a competitive advantage.

I don't know anything about the book Adam's asking about. (I've seen it in the book stores but I've never read it.) However, just because a book is "old" doesn't mean you should necessarily dismiss it. Many fund managers today swear by Benjamin Graham's approach, and to my understanding they consistently make above-average returns for their clients.

If you want to know some "proven" ways to profitably invest in the stock market, I suggest looking at "Selecting Stocks that Perform" by Richard Koch. He reviews 10 different methods that generally beat the market. (Value investing is one of those methods.)

- Dien Rice
 


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