The Intelligent Investor

The Intelligent Investor
Publisher: Harper Business
Published: 2/21/2006
The greatest investment advisor of the twentieth century, Benjamin Graham taught and inspired people worldwide. Graham's philosophy of "value investing" -- which shields investors from substantial error and teaches them to develop long-term strategies -- has made The Intelligent Investor the stock market bible ever since its original publication in 1949.

The Intelligent Investor By Benjamin Graham

Does the thought of investing intrigue you?

Are you wondering how people make big payouts with their investments?

Have you been timid to try investing money because of the current economy?

Well, have no fear, author of “The Intelligent Investor” Benjamin Graham is here to help you with your investing questions and woes.

According to Graham in order to keep your money in your wallet, it’s all about investing intelligently and strategically. It’s all about being patient.

Don’t expect quick wins! Slow and steady wins the race.

“On the other hand, investing is a unique kind of casino—one where you cannot lose in the end, so long as you play only by the rules that put the odds squarely in your favor.” - Benjamin Graham

Key Points

-Short-Term Gains Shouldn’t Be Your Goal

According to the Graham Plan that has been utilized since 1949, it is important to study the company before investing in it.

“You must thoroughly analyze a company, and the soundness of its underlying businesses, before you buy its stock; you must deliberately protect yourself against serious losses; you must aspire to ‘adequate’, not extraordinary, performance.” - Benjamin Graham

Many people focus on short-term gains based on the fluctuation of the market. This is not a sustainable way to earn a big pay-out through investments. The market is unpredictable, so by trying to study market patterns to theorize your investments, you risk losing your hard-earned cash.

-Focus on Pricing

Intrinsic value is the calculated value of an asset. A smart investor will buy stock in a company when it is below the intrinsic value.

An intelligent investor should only buy a stock if there is some sort of profit to be had.

Buying a stock when it is above its intrinsic value may seem desirable because it looks as if the stock is doing really well. But, overtime the value will go down as people discover that the stock really isn’t worth as much as it was letting on. Think of it as a fading trend or a marketing hype! Ultimately, by buying a stock when it’s above its intrinsic value, you will end up losing money in the end.

-The Three Principles

  • Analyze the Long-Term

Once again, it’s important to analyze the long-term potential of a company before investing. Investing takes time, so you want to put your focus on companies that will continue to grow and develop despite the effects of the current market.

Important things to look at while investigating a company for investment opportunities in the financial structure, the management quality, the pay to its employees, and of course, what part of the profit you will receive through an investment.

  • Protect Yourself Against Losses

It’s vital that you protect yourself against losses that you can’t afford.

You never want to put all your eggs in one basket, even if the company looks flawless. Some things such as tax evasion or fraud are out of your hands. These are situations that you can’t predict.

So, by investing in multiple companies at once, your money is in different places making it harder to lose everything at the same time.

  • Safe and Steady

Do not go into investing thinking that you are going to make millions easily.

“But investing isn’t about beating others at their game. It’s about controlling yourself at your own game.”- Benjamin Graham

If you are investing personally, you are not in competition with stockbrokers that work professionally in the investment field. Focus on the slow and steady gain and say ‘goodbye’ to the greedy Wall Street mindset.

-Stock Market History is Something to Look At

Although we don’t want to admit it when we are investing our money in stocks, the market is very unpredictable.

Throughout history, there have been ups and downs that could not have been foreseen.

However, by understanding the history of the stock market, you can be mentally and financially prepared to handle these horror situations.

Some things to keep in mind are…

  • Don’t sell everything when things get scary. The market will always recover.
  • Make sure you have a diverse stock portfolio. Having your money in different places will soften the blow.
  • Be in the know about the company’s correlation with the stock market. Look at the company’s earnings throughout the years and take into consideration outside factors such as inflation rates.

-Mr. Market is Not Your Friend

The market can make you believe things that just aren’t true. If something is being hyped up in the stock-world, people will happily overpay for stocks. This is similar to when a new hip product comes out and people hand over their paychecks just to say they bought it.

Many investment hypes will make you see profits that aren’t really there. So, it’s important to stay grounded and realistic about your stocks.

-The Different Strategies

When you make your way into the investing world, it’s vital to choose an investment strategy that is right for you.

  • The Defensive Investor

This is the plan for someone who hates risks and losses. It is the safest strategy for investing. For this investment plan, you should invest about half of your available money in high-grade bonds and the other half in common stocks.

Bonds produce less profit but are more safe, while stocks are a little riskier but can reap bigger rewards.

The defensive investor uses a dollar-cost averaging strategy. This is the process after you have chosen your stocks and you begin to invest the same amount of money into them weekly, monthly, quarterly, etc. This is also called formula investing.

  • The Enterprising Investor

Like, the defensive investor the enterprising investor will have a mix of both high-grade bonds and common stocks. However, the common stocks will take up the majority of the investments.

Enterprising investors should consult a financial planner, as they are playing a more risky game than that of the defensive investor.

These investors can put money on high-risk stocks in order to experiment and gain a better understanding of the market.

Enterprising investors do not follow the ups and downs of the market. They keep their cool during the downs and continue to buy as a smart investor should.

The Big Take-Away

Intelligent investing is not about making profits fast, it’s about a slow and steady build that will pay-off in the long-term.


Leave a Reply

Your email address will not be published. Required fields are marked *