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What kind of Investor are You?

Advice from Warren Buffett’s Greatest Teacher

By Richard Black on ALTCOIN MAGAZINE

Warren Edward Buffett is a legendary investor who ranks among the worlds richest people. He has amassed a personal fortune in excess of $62 billion and in 2008 was ranked #1 in the Forbes World’s Billionaires list.

However, if you were to ask him whom he thinks is the greatest investor of all time, he would mention one person — His teacher and mentor Benjamin Graham.

Graham was an investor and mentor who is generally considered to be the father of value investing and security analysis. His methods and approaches to investing are well documented in both his books “Security Analysis” (1934) and “The Intelligent Investor” (1949).

Although seemingly dated, this principles and approaches have withstood the test of time and these books are often considered two of the most famous investing books ever written.

However, Graham’s books are not easy reads. Even though these principles may be lost in time (printed about 70 years ago) or simply because they are difficult reads, there are universal truths hidden in them just as applicable today as when they were first written.

Many of his principles and approaches can equally be applied to cryptocurrency — in particular the importance of understanding what type of investor you are.

You don’t have to be this guy to trade cryptocurrency

What Kind of Investor Are You?

Graham made the point that it’s very important people need to be very clear on what type of investor they are.

To illustrate this point, he makes some distinctions between the four different classifications of investors:

Active vs Passive Investors

Graham refers to active investors as “enterprising investors” and passive investors as “defensive investors”.

According to Graham, there are only one of two choices:

  1. Active: To make a serious commitment in time and energy to become a good investor who equates the time invested in research with the expected return on those investments; or
  2. Passive: An approach which requires much less time and work where in many cases you leave the investment choices to an expert.

For Graham, the equation for success was work = return.

The more you put into learning and researching your investments the higher your return will be. Active investors would have more opportunity to earn higher returns, however more work would be required by the investor to do so.

When it comes to passive investing, the best advice I heard to date is:

Take 5% of your portfolio and invest it in bitcoin. Then forget about it for the next 10 years.

Speculator vs Investor

Not all people are investors. This is especially true for cryptocurrencies where most people are speculators. Graham believed it was very important to determine whether you are an investor or speculator and then base your investing decisions upon it.

  1. Investor: An investor looks at the stock/coin/token as part of the business and considers himself an owner of the business;
  2. Speculator: A speculator has little interest in the intrinsic value of the business and more concerned with the value someone will pay for the asset.

To paraphrase Graham,

There are intelligent speculators as well as intelligent investors; the key is to be sure you understand which you are good at

This golden rule can save you in the cryptocurrency markets. Not only does your investing approach need to match your personality type, it is the foundation upon why and how you conduct your trades.

Graham’s sage advice is still as pertinent today as it was over 70 years ago when he first penned his books on investing.

The technology may change but the fundamentals of the game will never.

Trade Safe,

Richard

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The purpose of ALTCOIN MAGAZINE is to educate the world on crypto and ultimately to bring it to the hands and the minds of the masses. Brought to you by the best writers in the world. This article was written and composed by Richard Black for Altcoin Magazine.

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