STOCK MARKET FLUCTUATIONS - TAKE ADVANTAGE - THE INTELLIGENT INVESTOR BOOK
Channel: Value Investing with Sven Carlin, Ph.D.
Date: 2018-05-17

What do I do? Full-time independent stock market analyst and researcher:
https://sven-carlin-research-platform.teachable.com/p/stock-market-research-platform

Check the comparative stock list table on my Stock market research platform under curriculum preview!

I am also a book author:
Modern Value Investing book:
https://amzn.to/2lvfH3t

More about me and some written reports at the Sven Carlin blog: https://svencarlin.com

Stock market for modern value investors Facebook Group:
https://www.facebook.com/groups/modernvalueinvesting/

Link to research platform:

https://sven-carlin-research-platform.teachable.com/

Warren Buffett stated that all you need to know for profitable long term investing is Chapter 8 and Chapter 20 of Benjamin Graham’s book The Intelligent Investor. The Chapter is titled “The Investor and Market Fluctuations” which is something we are all always following and intrigued by. The key is to prepare both financially and psychologically for market fluctuations.
Market fluctuations as a guide to investment decisions – timing vs. pricing
Graham distinguishes two ways of taking advantage of market fluctuations; you can time the market or you can price. Timing assumes you predict where will the stock market go next while pricing makes you look for stocks trading below their fair value. 
Graham is straightforward about market timing and sees it as absurd to think that the general public can ever make money out of market forecasts and technical analysis as the popularity of a market strategy cancels its benefits and long term advantage if there is any.
Can you buy low and sell high?
We are all attracted by market cycles. Looking at past stock charts makes you with you sold out in 2007 and bought more in 2009 but it all looks easy only in hindsight. If we look at the S&P 500 in the last 10 years one would had been extremely happy if sold in 2011 especially as the market dropped again soon after and the stock market doubled from the 2009 bottom. However, since 2011 stocks have doubled again and this shows how difficult it is to buy low and sell high. 
So, Graham is against making any investment decision by looking at price movements. The only thing one can do is to be prepared for stocks to fluctuate. Graham states how probably most of our holdings will advance 50% or more from their low point and decline 33% or more from the high point in the next 5 years.
Such huge medium term jumps make at least one thing easy; daily, weekly or even monthly stock price moves won’t make you any richer or poorer. Further, everyone of us needs significant will not to follow the crowd which is something extremely difficult to do in this market when the S&P 500 is again approaching record highs. If you must do something, Graham suggest rebalancing between bonds and stocks depending on valuation to at least partially counter the crowd.
Business Valuation versus Stock Market Valuation
The key to making investing easy it to look at yourself as a silent partner in a private business. In such a case, your returns are completely dependent on the profits of the enterprise where the change in book value and dividends tell you your returns. 
I must say that from a personal perspective all of my past investment successes came when I focused on the business and the underlying earnings. This makes investing so easy as you don’t care much about what is going on with the stock. 
However, given all the entertainment surrounding investing, it is much more difficult to focus on the business than on the price. 
Graham discusses how the more a business is doing good, the more risky it becomes as the market is willing to pay whatever premium when things go well.
Graham’s rules for investing are the following:
Buy at maximum of 33% over book value
Buy at a satisfactory ratio of earnings to price
Buy into a financially strong company (low debt)
Expect earnings to be maintained over the years

Conclusion – acquire businesses at suitable prices
Graham’s message is simple:
Take advantage of low price levels and high price levels
Buy when you have money but be careful what you buy
Don’t worry about market fluctuations as you can’t influence those
Avoid buying when market has extremely high valuations, look for special situations then
Never buy or sell something due to market moves
Find good management running the business
Be a business owner
If you can follow the above, you have nothing to worry!