Benjamin Graham Quotes



Best 10 Quotes by Benjamin Graham

“An investment is based on incisive, quantitative analysis, while speculation depends on whim and guesswork.”

“Experience teaches that the time to buy stocks is when their price is unduly depressed by temporary adversity. In other words, they should be bought on a bargain basis or not at all.”

“I quickly convinced myself that the true key to happiness lay in a modest standard of living which could be achieved with little difficulty under almost all economic conditions.”

“In market analysis there are no margins of safety; you are either right or wrong, and if you are wrong, you lose money.”

“It is absurd to think that the general public can ever make money out of market forecasts.”

“The essence of investment management is the management of risks, not the management of returns.”

“The intelligent investor is a realist who sells to optimists and buys from pessimists.”

“The intelligent investor is likely to need considerable willpower to keep from following the crowd.”

“The investor’s chief problem – and even his worst enemy – is likely to be himself.”

“Those who do not remember the past are condemned to repeat it.”

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“Don’t trade penny stocks. A penny stock is any stock that trades under $5. Unless you are an advanced trader, you should avoid all penny stocks.

I would extend this by encouraging you to also avoid all stocks priced under $10. Even if you have a small trading account ($5,000) or less, you are better off buying fewer shares of a higher-priced stock than a lot of shares of a penny stock.

That is because low-priced stocks are most often associated with lower quality companies. As a result, they are not usually allowed to trade on the NYSE or the Nasdaq. Instead, they trade on the OTCBB ("over the counter bulletin board") or Pink Sheets, both of which have much less stringent financial reporting requirements than the major exchanges do.

Many of these companies have never made a profit. They may be frauds or shell companies that are designed solely to enrich management and other insiders. They may also include former 'blue chips' that have fallen on hard times like Eastman Kodak or Lehman Brothers.

In addition, penny stocks are inherently more volatile than higher-priced stocks. Think of it this way: if a $100 stock moves $1, that is a 1% move. If a $5 stock moves $1, that is a 20% move. Many new traders underestimate the kind of emotional and financial damage that this kind of volatility can cause.

In my experience, penny stocks do not trend nearly as well as higher-priced stocks. They tend to be more mean-reverting. Mean reversion occurs when a stock moves up sharply from its average trading price, only to fall right back down again to its average trading price.

Many of them are eventually headed to zero, but they are still not good short candidates. Most brokers will not let you short them. And even if you do find a broker who will let you short a penny stock, how would you like to wake up to see your penny stock trading at $10 when you just shorted it at $2 a few days before?

I learned that lesson the hard way. It turned out that I was risking $8 to make $2, which is not a good way to make money over the long term.

To add injury to insult, a penny stock might appear to be liquid one day, and the next day, the liquidity dries up and you are confronted by a $2 bid/ask spread. Or the bid might completely disappear. Imagine owning”


More quotes by Matthew R. Kratter