WEB EXCLUSIVE: Shop for stocks like clothes

Tim Mak

Benjamin Graham, variously called the Father of Security Analysis and the Dean of Wall Street, wasn’t exactly the greatest investor there was. But surely he was one of the best investment teachers. He didn’t set out to devote his time to managing money for his investors, but he truly spent a lot of time educating the public about investing.

He taught at Columbia Business School, gave public lectures and speeches and wrote columns for the mass media. He started writing columns when his investment partnership wasn’t performing very well and didn’t think he should be charging any management fees under those circumstances. So he, among other things, taught evening investment classes and wrote columns to help make ends meet. Later, his public teaching became a habit, a devotion, a mission, long after his investments had turned around.

He even wrote for a women’s magazine. In one column, he advised investors to invest and pick stocks like women shopping for groceries and foodstuffs, not like when they go shopping for clothes and fashions. First, shoppers typically go for value. Second, shoppers usually ask themselves: what’s the current hottest thing?

Graham’s favorite student, the only one who got an A in his investment class at Columbia in his long service there, aptly sums up Graham’s point:

Price is what you pay, value is what you get.

The “value” of a certain thing is typically determined by its economics, being influenced by lots of long-term-oriented factors. But the “price” of the same thing at any given point in time is usually influenced more by the emotional factors at the moment, which may or may not reflect the true, underlying economics.

If men or women can grasp the inherent idea of value versus price in “grocery” versus “fashion,” they will do well in investment. Similarly, men should probably learn from women’s extreme selectiveness and apply that to investment.

Studies have shown that no matter how big a group is, whether it’s a group of 10 or 500 people, in a mental exercise men typically find half of the women in a group attractive enough for them to go to bed with. Women, the more selective sex, usually consider only 2 or 3 of the men (whether it’s a group of 10 or 500 men) attractive enough for them to spend the night with.

A billionaire investor once railed against his audience, a group that had invited him to speak. He admonished their practice of buying a large number of stocks and other investments and encouraged them instead to stick to just three best stocks from the universe of investments available.

A great Omaha investor says you only need to make 12 investment decisions right in your entire lifetime to be stinking rich. He says he can make college students super rich in their lives by simply asking them to limit themselves to 12 investments in their entire lifetimes, because, with that, they will be very, very careful in what they buy.

Tim Mak is a teaching fellow at the College of Business Administration and a columnist for the Summer Kent Stater. Contact him at [email protected].