News Analysis date published New: 
Monday, July 23, 2012 - 10:00
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Monday, July 23, 2012 - 10:16
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Monday, July 23, 2012 - 10:00

How This "Forgotten" Billionaire's Wisdom Could Make You a Fortune

Monday, July 23, 2012 10:00 AM

Warren Buffett called it "by far the best book on investing ever written."

Benjamin Graham penned his groundbreaking work, "The Intelligent Investor," in 1949. Graham, the widely acclaimed "father of value investing," put forth ideas about security analysis that for the first time spelled out the differences between investing and speculating.

Last week, I happened across my tattered copy of Graham's book, which I first read back in the early 1970s.

Based on the number of handwritten exclamation marks in the margins, this is a passage from the book that originally caught my attention as a college junior:

"Never buy a stock immediately after a substantial rise, or sell one immediately after a substantial drop." Good advice then, good advice now.

But last Saturday, July 14, I unwittingly found myself underlining another sentence from the same section, nearly 40 years later:

"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."

In other words, Graham is telling me, stay the course, even in this volatile market.

Both tidbits are from chapter 8, which Warren Buffett famously cited in his letter to Berkshire Hathaway (NYSE: BRK-B) shareholders earlier this year. (You can read the letter here.)

Buffett read Graham's advice for the first time on how investors should view share-price movements, "the scales fell from my eyes, and low prices became my friends," the Oracle told Berkshire shareholders. "Picking up that book was one of the luckiest moments in my life."

In the current issue of Top 10 Stocks, StreetAuthority Co-Founder and Chief Investment Strategist Paul Tracy turned to his own bookshelf to channel another notable investor from a half-century ago: American industrialist J. Paul Getty.

The wealth Getty amassed is almost unimaginable. At one time, his estimated worth was roughly 1/900th of the entire U.S. economy. Today that would equate to $160 billion -- four times Buffett's net worth.

He even earned his first million in 1916 at the ripe age of 23 (although $1 million in 1916 would be worth about $20 million today).

And while he made a fortune drilling for oil, he also made a fortune in a completely different place -- Wall Street.

So how did Getty make so much money investing? Lucky for us, he told anyone who would listen how to make a fortune in the stock market.

Forty-seven years ago, Getty wrote a book called "How to Be Rich" (you can pick up a copy for just a few dollars on Amazon).

His investment advice?

"The big profits go to the intelligent, careful and patient investors, not to the reckless and overeager speculator. The seasoned investor buys his stocks when they are priced low, holds them for the long-pull rise and takes in-between dips and slumps in stride," said billionaire J. Paul Getty in his book "How to Be Rich."

Am I detecting a theme here?
Aside from personal wealth, Getty and Graham did not have a lot in common. Getty was a U.S. born oil tycoon who lived in Britain for 25 years; Graham was born in London and went on to achieve fortune and fame on Wall Street and Columbia University.

But when it came to using money to make money, they had common ground. Both of these highly successful investors favored investing in dividend-paying companies with strong positions in their markets, and holding them for the long term. More important, they didn't see market sell-offs as scary. They viewed them as opportunities.

If you're a regular reader of Top 10 Stocks, then this will sound familiar. Each month, Chief Strategist Paul Tracy focuses on companies that dominate industries, in businesses that are essential to everyday life. And for good measure, Paul pays special attention to companies that are paying increased dividends or buying back big chunks of their shares.

And he's staying the course, despite volatile markets.

"I may adjust my portfolio," Paul wrote in the June issue. But "I'm not about to sell wildly. The investments in my Top 10 Stocks portfolio are dominant companies that I'm convinced will make investors wealthy over the long-term. Swings in the broader market won't change that."

The best thing about "swings in the broader markets," of course, is the buying opportunities they create.

Action to Take --> Most investors know that it's good to buy solid stocks when others are selling and that holding for the long term is one of the best ways to grow your wealth in the market. But there's a big difference between what we know and what we actually do. Investors who can actually put this strategy to use stand to outperform the market over the long-haul -- and potentially by a great margin.

[Note: Need proof this strategy works? For all of 2011, the stocks Paul tabbed as his "10 Best Stocks to Hold Forever" returned an average of 22.7%, compared to 2.1% for the S&P. Right now, you can receive Paul's exclusive "10 Best Stocks to Hold Forever" report -- risk free. Simply visit this link to learn more.]

Bob Bogda does not personally hold positions in any securities mentioned in this article.
StreetAuthority LLC owns shares of BRK-B in one or more of its “real money” portfolios.