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Investment Insight
The Grocery Store Approach to Stock Selection Morning Star

John Owens
Senior Portfolio Manager
For General Public Use

“If you are shopping for common stocks, choose them the way you would buy groceries, not the
way you would buy perfume.” – Benjamin Graham

Ben Graham is often referred to as “the father of value investing”—an investment approach that involves seeking out companies that are believed to be trading at a discount to their intrinsic value. This concept influences many decisions we make every day at Morningstar Wealth, extending beyond work hours.

Drawing from Graham’s analogy, we’ll explore how everyday grocery store tips translate into valuable guidance for stock investing. Our aim is to provide financial advisors with actionable insights to educate their clients about our philosophy and approach.

Take Inventory Before Shopping

Consult with a financial advisor: Before embarking on an investing journey, seek guidance from a financial advisor. An advisor can help clients define their investment objectives, assess risk tolerances, and understand their preferences.

Buy Frozen Vegetables, Frozen Fruit, and Canned Foods; Avoid Spoiled Goods

Be a long-term investor: We aim to buy businesses that will stand the test of time and try to avoid companies with deteriorating fundamentals.

Shop in Season

Emphasize quality: Just as one would choose fresh and tastier in-season produce, we prioritize businesses we believe have strong fundamentals.

Price matters: In-season produce is often available at lower prices, too. So, we seek to buy stocks when they are attractively priced.

Compare Prices and Shop Smart

Buy stocks at discounts: Similar to clipping coupons and buying items on sale, we purchase stocks when they are priced below our estimate of their intrinsic value.

Consider Limiting High-Priced Items

Avoid richly valued stocks: Just as one might skip expensive items at the grocery store, we’re cautious about buying stocks trading at high valuations.

Sell when appropriate: If a stock price approaches or exceeds our estimate of its intrinsic value, we consider selling.

Shop Alone and on a Full Stomach

Be contrarian: To outperform the market, dare to be different. Don’t always follow the herd.

Beware of behavioral biases: Remember Warren Buffett’s advice: be fearful when others are greedy and be greedy when others are fearful.

Pay Attention at the Register

Monitor the portfolio: We regularly review our individual stocks and overall portfolios.

Watch taxes and transaction costs: Just as one checks a grocery receipt, we keep an eye on investment-related costs.

Adopting a grocery store approach to stock selection underscores the importance of discipline, patience, and thorough research in investing.

By following these principles, investors can navigate the stock market with confidence, staying true to their long-term objectives while avoiding common pitfalls.

Schedule Your Free Financial Consultation Now

Take the first step towards financial clarity with our free consultation. Contact Abraham Financial Planning today to see how our advisors can help guide your financial future.