Lessons from the Masters – Part 1

In this post, I try to summarise the lessons (I quote) from my Masters. This might be a series of posts. This is the first one, and probably a basic hypothesis with which I’ll start.

Benjamin Graham

According to Graham, a stock can be considered for purchase if it meets any of the following criterion:

1. Current price is less than half of its two year high.

2. Current price is less than book value.

3. At the current price, the earning yield is greater than twice AAA bonds (More on earning yields later. In simple terms P/E < 50/Interest Rate). When it came to selling, sell a stock at 50% profit (if achieved) or at the end of two years (at whatever be the prevailing market price).

Chandrakant Sampat

Pick up good companies with good managements when their share prices are at an eight-year or 10-year low. Alternatively, if you still want to do something, buy good companies that are 40 per cent lower than their 52-week high. I will buy only those companies that

• Are in a business that even fools can understand

• Have very little debt

• Have free cash flows

• Don’t have much capital expenditure, which is nothing but deferred cost


He learnt some lessons in his investing period, which include:

1. Choosing 2/3rd of book value (P/B < 2/3) would have reduced my losses substantially.

2. If I had a structured value averaging technique (instead of haphazardly buying more when price fell), it would have resulted in improved performance.

3. My portfolio would have performed better if I had structured reserve cash to buy stocks when they fell more.

4. My portfolio would have performed better if I had logically separated the concentrated portfolio with the diversified one.5. I also stumbled upon one technique of selling stocks that seemed to consistently better than buy and hold for stocks that had a free fall (sell half the stock when it is up 50% from the lowest price it has fallen).


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