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It’s enough to make you reach for Gravol if you are constantly watching the markets, as everyone seems to these days. The S&P 500 climbed more than 5% in a matter of three hours while bond investors would be happy to make that in an entire year! At times like these, amidst breathless front-page coverage of every gyration in the stock market, you can dust off your copy of The Intelligent Investor and find solace in the counsel of Benjamin Graham. Chapter 8, titled The Investor and Market Fluctuations has these wise words:
The investor with a portfolio of sound stocks should expect prices to fluctuate and should neither be concerned by sizable declines nor become excited by sizable advances. He should always remember that market quotations are there for his convenience, either to be taken advantage of or to be ignored. He should never buy a stock because it has gone up or sell one because it has gone down. He would not be far wrong if this motto read more simply: “Never buy a stock immediately after a substantial rise or sell one immediately after a substantial drop.”
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9 responses so far ↓
1 moneygardener // Jan 23, 2008 at 9:45 pm
Yes, but should one buy a stock after a substantial fall, or sell a stock after a substantial rise…?
2 nancy (aka money coach) // Jan 24, 2008 at 2:45 am
what a great quote! If you don’t mind me asking, how on earth did you find it? (seems rather rarified)
3 Canadian Capitalist // Jan 24, 2008 at 10:11 am
MG: Graham thinks an investor should buy stocks as long as markets are not at a high level. By “high level” he means p/e based on an average of past three years earnings are not at very high levels.
Nancy: The book is full of great quotes. If you haven’t read it already, I highly recommend it.
4 Phil S // Jan 24, 2008 at 10:38 am
MG: I think that is the big question that all investors struggle with. For me, the “buy” question depends upon the company fundamentals. If you like the company because it has strong fundamentals, then yes, by all means I’ll buy it if the stock price falls. It doesn’t make sense to buy a company whose stock is cheap if you don’t like the underlying business. The “sell” for me is very difficult to answer. I’ve been trying to switch from being a trader (who has historically tended to sell when I make more than 20% on a stock) to Warren Buffet’s strategy of having a “forever” time horizon… Aka NEVER selling.
5 Dragan // Jan 24, 2008 at 11:31 am
This quote should be taken within the context of the rest of Graham’s book and that is that you always buy stock with a substantial margin of safety (for example bellow book value) so market declines of a stock will likely not fall bellow your initial investment.
6 KS // Jan 24, 2008 at 11:31 am
Great quote!! It is in times like these that one needs to remain patient.
7 Tony Danza // Jan 24, 2008 at 5:44 pm
“Never …sell one immediately after a substantial drop.” seems all the more poignant considering that the plummeting global markets and ensuing panic were likely the result of one “rogue” trader in Paris.
8 Weekly Dividend Investing Roundup - January 25, 2008 » The Dividend Guy Blog // Jan 25, 2008 at 10:58 am
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9 Ouch! TSX down 12% in 6 days // Sep 9, 2008 at 11:34 pm
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