Quite possibly, Benjamin Graham would have called my philosophy and train of thought an attempt at speculation due to insufficient analysis of McDonald’s and Coca-Cola. The valuation could have been based on a broader time frame and many other external factors that affect the price. It is worth taking into account that both companies operate in efficient markets rather than not, which is dictated by technological development: the speed of response of the value of securities is relatively high on external factors.
Although completely efficient markets do not exist due to their high volatility and the irrationality of some investors, the corresponding preconditions for this exist. Therefore, these companies can be viewed in the context of value investing promoted by Benjamin Graham. The portfolio’s margin of safety is achieved through diversification, which, in a broad sense, is practically absent in the above portfolio. An in-depth analysis of Coca-Cola and McDonald’s financial performance was not carried out, contrary to Graham’s fundamental philosophy. Coca-Cola has significantly reduced its gross profit since the pandemic, which is reflected in the fall in current assets (Macrotrends, 2022b). However, previous years show the company’s ability to optimize its operations better while maintaining the upside potential for the stock.
A similar analysis of McDonald’s showed significant growth in 2021 after a tough pandemic year. At the same time, in this positive trend, the number of current assets increased significantly, bringing their total ratio with liabilities closer to one (Macrotrends, 2022a). This signal can be perceived as a recovery from the pandemic and significant growth potential for future years. Therefore, Graham could use this particular stock to buy, although it is very likely that even in this industry, there may be more promising options. Another analysis not done is horizontal, which is conducted initially across the entire market and without brand orientation.
Lack of profit at high turnover is not a verdict for the company. This fact can signal the deployment and ongoing expenses for the organization’s development. In such cases, financial indicators will build a negative picture for an investor who will focus solely on quantitative indicators. However, with a detailed analysis of the external macro-environment, one can notice that, for example, Tesla is a promising company promoting science and positioning its own goal and mission. This vision turned out to be in tune with modern trends in caring for the environment and the planet’s ecology, which has a beneficial effect on investor attractiveness (Motta & Uchida, 2018). In the age of the availability of various kinds of information and the possibility of its transfer, external factors began to play a much more critical role in shaping the price of a company’s share. On the other hand, an investor can find reasons for the lack of profit, the company’s continued existence, and even potential revenue growth. Perhaps the organization is on state support, a critical infrastructure requiring ongoing expenses that significantly outweigh income.
Graham’s style is described in sufficient detail above; Warren Buffett is his student and preaches value investment. Philip Fisher’s strategy differs markedly from the one described above, as it focuses on long-term results, and securities pricing is determined solely by supply and demand (Drake et al., 2022). There can be a robust and indirect relationship between a company’s financial performance, share prices, and supply and demand mechanisms, but it is often because of investor irrationality and market volatility that these determinants can call for different actions. Sir John Templeton’s philosophy is to value stocks and only buy undervalued stocks with a long enough hold (Drake et al., 2022). Calm endurance in times of bear markets and turmoil is the basis for investing and buying, while the sale of securities should occur in the pre-crisis period.
Finally, another philosopher is Peter Lynch. His strategy is to rotate stocks or replace them with the most promising ones (Drake et al., 2022). Each sale process is accompanied by a response in the form of a purchase. Peter Lynch is considered a growth investor, as his approach is aimed at increasing capital. In the next ten years, times of crisis are expected on the global stage, caused both by the consequences of the pandemic and by the complex geopolitical situation in Eastern Europe. These factors create conditions of uncertainty within which decisions must be made. The tremendous success, in this case, was sir John Templeton, who just described the necessary behavior of the investor in particular moments of market instability. High volatility in stock prices is dictated by panic among investors; in this context, one can take advantage of the excess value of shares.
Consequently, sir John Templeton’s ideas will be most relevant in the bear markets where he made his fortune. Fixing the fall of assets is already signaling possible losses, and in this case, the best tactic would be to save stocks that cannot be for a long time to the extreme peak state due to high uncertainty (Drake et al., 2022). The most reliable defense mechanism against these situations is portfolio diversification: all the listed masters agree on this idea, but for different reasons. Investing exclusively in sustainable budgets carries much less risk but does not promise a return. In this situation, the ideas of Warren Buffett are consonant, who, in a timid market, calls for greed since many stocks have a much lower value than their potential (Drake et al., 2022). To do this, the brokerage account must always have free assets.
Inevitably, a downturn must be followed by a bull market or a significant upturn in a business cycle. If there are more buyers than sellers and the market grows, stock prices will rise in direct proportion. The best adviser would be Pete Lynch with his rotation. The increase in capital due to the constant share price growth minimizes the risks. However, such rises steadily push themselves into times of crisis. Each investment becomes risky, and maximum rotation and dumping will help minimize the risk of being left with irrelevant securities.
References
Drake, P. P., Fabozzi, F. J., & Fabozzi, F. A. (2022). The Different Types of Risk in Investing. World Scientific Book Chapters, 421-434.
Macrotrends. (2022a). McDonald’s – 52 Year Stock Price History | MCD.
Macrotrends. (2022b). CocaCola – 60 Year Stock Price History | KO.
Motta, E. M., & Uchida, K. (2018). Institutional investors, corporate social responsibility, and stock price performance. Journal of the Japanese and International Economies, 47, 91-102.