Benjamin Graham - Do not time the market, profit from pricing the market: Part 1

Key takeaways at the end

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The most realistic distinction between the investor and the speculator is found in their attitude toward stock-market movements. The speculator's primary interest lies in anticipating and profiting from market fluctuations. 

The investor's primary interest lies in acquiring and holding suitable securities at suitable prices. Market movements are important to him in a practical sense, because they alternately create low price levels at which he would be wise to buy and high price levels at which he certainly should refrain from buying and probably would be wise to sell. [...]

Since common stocks, even of investment grade, are subject to recurrent and wide fluctuations in their prices, the intelligent investor should be interested in the possibilities of profiting from these pendulum swings. There are two possible ways by which he may try to do this: the way of timing and the way of pricing.

By timing we mean the endeavor to anticipate the action of the stock market – to buy or hold when the future course is deemed to be upward, to sell or refrain from buying when the course is downward. 

By pricing we mean the endeavor to buy stocks when they are quoted below their fair value and to sell them when they rise above such value. [...]

We are convinced that the intelligent investor can derive satisfactory results from pricing of either type. We are equally sure that if he places his emphasis on timing, in the sense of forecasting, he will end up as a speculator and with a speculator's financial results. [...]

The farther one gets from Wall Street, the more skepticism one will find, we believe, as to the pretensions of stock-market forecasting or timing. The investor can scarcely take seriously the innumerable predictions which appear almost daily and are his for the asking. Yet in many cases he pays attention to them and even acts upon them. Why? Because he has been persuaded that it is important for him to form some opinion of the future course of the stock market, and because he feels that the brokerage or service forecast is at least more dependable than his own. [...]

The investor with a portfolio of sound stocks should expect their prices to fluctuate and should neither be concerned by sizable declines nor become excited by sizable advances. He should always remember that market quotations are there for his convenience, either to be taken advantage of or to be ignored. He should never buy a stock because it has gone up or sell one because it has gone down. He would not be far wrong if this motto read more simply: "Never buy a stock immediately after a substantial rise or sell one immediately after a substantial drop."

Chapter 8, The Intelligent Investor (1973)

* Bold emphasis added

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Key concepts and takeaways:

• Focus on business fundamentals: The stock market will be volatile and prices will fluctuate. You must refrain from thinking that those market movements are giving you some sort of signal. Do not feel obliged to act on those fluctuations. To deal with market fluctuations, remember Mr.Market – a manic-depressive fellow that is sometimes willing to sell you stock at an attractive price. You should only be buying or selling stock based on business fundamentals.

• Views on market movements: Don’t feel obliged to have some opinion on or seek explanation of daily share price movements. Do not try to rationalise every movement driven by wider market sentiment (“Oh, I must have missed some important information”). This is going to distract you from focusing on the quality of the underlying business.