In preview, we expect this will be a “boring” insight but an important foundation for proper investing. What are the proper investing fundamentals? The Conventional Definition is “The act of committing money or capital for purpose or expectations of financial gain”. But the conventional definition does not differentiate between thoughtful and wishful actions. The act could include many activities considered “gambling” or “speculative”.
A Fundamental Definition of investing is “an investment operation is one which, upon thorough analysis, promises safety of principal and a satisfactory return. Operations not meeting these requirements are speculative.” This was described by Ben Graham. A Promise is not a guarantee, and reality may be far different than expectations. In loans or bonds, the debtor may be unable to pay interest and principal timely. In businesses or stocks, the reality of earnings available to the owner may be far different than expectations or assumptions. Safety “must be based on study and on standards” which requires thoughtful consideration of potential (and the probability) of downside risks. Expectations without downside protection is incomplete.
