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This book is perhaps the most important and insightful book on investing, and an eternal classic. It is not a book that promises ‘How to become rich…’ or ‘Mastering Stock market in a week….’ or ‘Beating the market made easy…’ or any shortcut to a quick buck. The book teaches three powerful lessons of how one can:
- minimize the odds of suffering irreversible losses - maximize the chance of achieving sustainable gains - practice emotional control and behavior to help the investor achieve full potential.
The book is about investing and having said that, investing is for the long term. Short term investing is like saying one is a spendthrift miser. While long term investors buy stocks or bonds for its intrinsic value and hold them, the 'short termers' play on its price like a video game, high on dopamine, ‘seeing price patterns’. While the intrinsic value of the security is stable, the markets, built upon the greed and fear of speculators, fluctuate widely and it is this constant flow of price movements that is the juice of speculation.
The intelligent investor is the one who estimates the value of a stock based on some key parameters like the company’s long-term prospects, quality of management, financial strength and capital structure, dividend record, and current dividend.
Graham lists two types of intelligent investors. The ‘active’ or ‘enterprising’ who does continuous researching, selecting and monitoring a dynamic mix of stocks, bonds and mutual funds. The ‘passive’ or ‘defensive’ investor on the other hand, creates a permanent portfolio that runs on autopilot and requires no further effort (but generates very little excitement) argues the author so elegantly. Quoting the investment thinker Charles Ellis, ‘’the enterprising approach is physically and intellectually taxing, while the defensive approach is emotionally demanding’’.
For the long-term defensive investor, who has abundant emotional courage not to be distracted by daily price movements, there is no need to look at the daily price. In fact, the investor ‘’would be better off if his stocks had no market quotation at all, for he would be spared the mental anguish caused by other persons’ mistakes of judgement.’’ We don’t check the price of our house every hour! The intelligent investor would make use of any opportunity if a good company is facing a temporary crisis and add more shares to his portfolio at lower price. (In cases of extreme exuberance, it is also wise to sell if the price seems too high to be real). A prudent investment methodology would be to add on more of high quality stocks on a regular basis, thus paving way for ‘dollar cost averaging’. A well-diversified stock and bond portfolio ensures long term risk mitigation.
Though the book is highly acclaimed in investment circles, in practice, only a miniscule of market participants adhere to the key principles the world over. Hence, situations like the Dot com bubble, the financial crisis of the last decade and the collapse of high priced so called ‘high growth stocks’ of unworthy and nefarious companies happen repeatedly.
‘’A man is known by the books he reads” said Ralph Waldo Emerson. Invest in companies that have proven track record, stellar management capabilities and high ethical standards of corporate citizenry. Being an intelligent investor is more a matter of ‘character’ than ‘brain’, is the key message of this great tome.
In the midst of sharp rises of cryptocurrency, booming stock market, it was difficult for me, as a 28-year-old, to sit down and read an "old" book like this one. FOMO occurred daily, but I kept reading without giving in to act to the market "just because things are going up". If Security Analysis by Mr. Graham is the science of investment, then the Intelligent Investor would be the art of investment.
I made the first attempt to read this book 2 years ago but had failed. At that time, I knew little about the stock market, the economy, how businesses work. Much of the text made no sense to me and I had eventually given up after 4 chapters. However, after getting educated by the good folks on YouTube, I was able to give this book another try. Granted, it was still very challenging, but the value that I received from it was far greater than the literary hardship I endured.
This is not a book that will get your blood to boil with excitement; it does not have tactics that offer promises of "do this and get rich". If you are here for that reason, this is not the book for you. It however, guides you to approach the art of investment with the right attitude to stock prices, fluctuations, portfolio and risk. This book provides the readers immense investment experience with an attempt to shape an aspiring investor like myself with a proper mindset.
Mr. Zweig's commentary after each chapter are mostly helpful. There are instances that I had finished a chapter without getting much of it. The commentary then explains what Mr. Graham really meant in an easy-to-understand way. However, I did find the comparisons of different companies in one of the commentaries to be quite repeated. Most of the examples from the commentary were drawn from the dot com bubble and therefore the comparisons had rather predictable endings. Though it is still valuable to witness second hand at how bad things became when it burst.
On the literary side, the language employed was slightly historical. Many sentences required me to re-read in order to understand. I think this is a good way to practise patience, as information is so easily accessible in today's world. I also got to learn a few new words from the text.
There are a lot of online commentaries on this book, as it has become almost "biblical" in value investing. I recommend the readers to use these commentaries to get a modern view of Mr. Graham's concepts.
If you wanted one and only one take away from this book it's the following tip: "An investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return. Operations not meeting these requirements are speculative." The rest of the book is about telling you how to tell the difference (e.g. buying a stock today hoping that it will go up tomorrow WOULD NOT be investing) and how to analyse a companies financials.
I began this book thinking I might have a side hobby of picking individual stocks as a side hobby. This book dispelled me of the glamour of that notion. As Benjamin Graham himself notes, a passive investor (someone who invests to at least match the average return of the stock market) can enoy success with a minimum of time while an enterprising investor (someone who works to "beat" the stock market) would only have a reasonable chance of success after doing lots of work as analysis and also having the necessary intellectual aptitude. Being an enterprising investor isn't for me because I can't dedicate the time to adequately research companies as he teaches in his book. I suspect that my situation would be the same as 99% of other people who want to invest their money.
What the book did most effectively for me is resolve my latent Dunning-Kruger effect where I imagined I could beat the intelligent people of Wall Street at their own game. I found the chapter commentaries by Jason Zweig to be especially helpful at highlighting amateur speculators who jumped into hot trends like dot com companies right before the industry collapsed. Both Jason and Ben work painstakingly to illustrate how hard it is to do the work of properly evaluating a company and establishing its true value vs its current price on the stock market or its book value (the balance of how much the companies assets are worth after already accounting for debts and liabilities).
The book helped me become literate about the different forms of investments available to me and the merits and handicaps of each. Bonds, Preferred Stocks, ETF's and Treasury Bills meant nothing to me before reading the book. Now I have a fair enough grasp of all investment tools to know what I'm getting into if I should ever choose to invest. The book is a long read as it goes through the in depth process of educating a lay person like myself but it does its job well. In that sense the book has aged marvelously with the help of modern commentary by Jason Zweig.
One drawback for me is that at various points Graham and Zweig tried to discuss how to address tax on capital income best but the advice was only relevant to an American. As a Canadian, I skipped those chapters and I had to research for myself about best reducing the taxable amount on my investment gains. Canadians might find a similar book written by a Canadian to be a better choice. Better yet, read both and be even more well prepared for investing on your own.
In the end, I decided that a balanced portfolio of ETF's tracking stocks and Canadian bonds. Being able to buy these on my own, without being hand held by a broker means that this book will probably already be saving me hundreds of dollars by the end of the year in management fees. Trust me, this book will pay for itself many times with sensible and sober advice.
In the future, I might do some angel investing for small start ups that I'm familiar with or other non-publicly traded investment opportunities. I'll only be doing that after reading many other books of the same caliber as this one. Even then, I'll be considering Graham's sagely advice to invest based on my careful assessment of what a company is actually worth, or in his words to “invest only if you would be comfortable owning a stock even if you had no way of knowing its daily share price.”
Benjamin Graham is the ultimate quantitative value investor. He focuses on examples from his time and moving forward from the first version of the book. Ultimately this book can serve as a basis for intellegent investing for those who are trully willing to put the work into research and development of their still into 'less' speculative investments. He convinced me to a great degree that risk can be used to our advantage and too much diversification might lead to its own misgivings. Oppurtunities exist everywhere, this book can serve as an example to peer into the market and find those oppurtunities to make 'reasonable' profits.
Stunning, classic advice for any beginner. This book got me very excited about investing and I've made huge progress since then. The book uses simple language, nice examples and is coservative in its recommendations. Overall, sensible and essential...
I expected this book to contain a lot of wise counsel. I expected it to make me less foolish with my investment choices. I hoped it might help me to make some money along the way, or at least protect the limited amount I already have.
What I did not expect was for it to be so much fun to read. Graham's prose is stylish, interesting and often funny and his advice and whole mindset cut right through all the hype and craziness of Wall Street and its followers. Zweig's commentary is also relevant, simple to understand and very amusing throughout. The only criticism I could make of this book is that the commentary was written in 2002 or thereabouts, so more recent market examples would have been nice and there are probably some more modern investment options which aren't covered. However the general points of the book are just as relevant as ever. If you have any interest in investing you will do yourself a huge favour by reading this, and probably have a lot of fun in the process.