Value Investing | The Most Important Rule

“An investment operation is one which, upon thorough analysis, promises safety of principal and a satisfactory return. Operations not meeting these requirements are speculative.”

-Ben Graham

This is the most important rule to be observed before making an investment of any kind.

I would rush to agree here except there is no description of what “safety of principal” is or a “satisfactory return”. Without these being defined I would argue that simply holding the SPY ETF would meet these criteria. Why get fancy?

Now if you are defining “satisfactory return” as equal to better than the S&P 500 over the same time period, and “safety of principal” as a lower drawdown than the S&P 500, then I might be more agreeable. Basically look for systems that outperform the overall market with a lower drawdown and/or volatility (translation - a higher Sharpe Ratio).

But without clarity, your Ben Graham quote doesn’t really help select anything.

Dear Kevin,

you are right I need to explain better:

for satisfactory return: I mean a result greater than the treasury bond USA (which are the safest investment option)

for a low-risk investment: I mean an investment that doesn’t involve the permanent loss of capital

you talk too about market volatility but here is what I think about market volatility: Don’t fear the market’s gyrations. Volatility is the best friend of the unemotional, patient, debt-free investor.

So Expect Volatility and Profit From It.