Checklist for successful investing

Use checklists in decision making. This checklist is not original. Instead, it has been derived from investment pioneer Benjamin Graham’s principles of value investing.

Here is the checklist for successful investing:

1) Treat a share of stock as a proportional ownership of the business
If you cannot understand the business of a company, you cannot understand its value. That’s why the underlying business is the only thing that matters when investing in a stock. Be motivated when you’re buying and selling securities by reference to intrinsic value instead of price momentum.

2) Buy at a significant discount to intrinsic value to create a margin of safety
The margin of safety reflects the difference between the intrinsic value and the current market price. We have to have a price that makes sense and gives a margin of safety.

3) Take advantage of irrational market behaviour
Sometimes the market gives you opportunities to take advantage of over- or undervaluations Consider it a blessing that the market gives you this series of options all the time.

4) Be rational, objective, and dispassionate
Rationality is the essential quality of a successful investor. It is the best antidote to psychological and emotional errors. Much like the margin of safety, the idea of being objective and dispassionate will never be obsolete.

Conclusion: The market is efficient but not totally efficient. This difference offers plenty of opportunities for disciplined investors.

Sven Franssen