In this newsletter, I share content I bumped into the past month that’ll help you become more financially savvy.

This is not financial advice; it's just education. Please think through your situation before applying anything you read here.

This month's recommendation:

An Excerpt from Security Analysis by Benjamin Graham

"...the investor is never forced to buy a security of inferior grade. At some sacrifice in yield he can always find issues that meet his requirements, however stringent; and, as we shall point out later, attempts to increase yield at the expense of safety are likely to prove unprofitable."

Security Analysis: The Classic 1940 Edition by Benjamin Graham and David Dodd

Commentary

Ben Graham is known as the father of value investing. He was a professor at Columbia University, where he influenced many successful investors, including a young Warren Buffett.

A core theme of Ben Graham's work is that you must be absolutely certain you will make money in any investment you choose to make. The excerpt above highlights this point with bonds, but Graham taught this for stocks as well.

You need to have 100% certainty when investing because life will always destroy at least some of your expectations.

When you feel 100% sure, then you're 50% of the way there. Life will always have surprises you've never accounted for. (A global pandemic, maybe? How about a Russian war? Perhaps the collapse of the crypto brokerage firm storing all your Bitcoin?)

If you're just 70-80% certain about an investment, you might as well treat it as a gamble. You must have certainty on the events you can know about, because the events you can't know about will be there ready to hurt you.

For example, many business owners who take on massive amounts of debt think that because the probability of their profits decreasing is low, they will always be able to meet their interest payments.

So they take on unsafe levels of debt. Then, when something like an unexpected global pandemic comes along, they end up getting wiped out.

Warren Buffett, Graham's star pupil, liked to summarize this concept as follows:

Rule number 1: Never lose money.

Rule number 2: Never forget Rule number 1.

You are never forced to invest in anything uncertain. If it doesn't feel perfect, just pass. There will always be more opportunities in the future.

KEITH LIM