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Welcome back to the Intelligent Investor series. In this chapter of The Intelligent Investor, Graham delivers his thoughts on how an investor is able to handle market fluctuations in a way that. Pinpointing the exact timing and nature of stock movements is difficult, if not impossible — even for the most intelligent of investors. Application of investing wisdom should be adapted to current circumstances. The Intelligent Investor is a classic and Graham’s wisdom, timeless. The principles of investing presented by Graham hold true in.

The Intelligent Investor
AuthorBenjamin Graham
Cover artistDonavan Hayes
CountryUnited States
LanguageEnglish
SubjectSecurities, Investment
PublisherHarper & Brothers
Publication date
1949
Pages640
ISBN0-06-055566-1 (2008 edition)
OCLC1723191
LC ClassHG4521 .G665

The Intelligent Investor by Benjamin Graham, first published in 1949, is a widely acclaimed book on value investing. The book teaches readers strategies on how to successfully use value investing in the stock market. Historically, the book has been one of the most popular books on investing and Graham’s legacy remains. The Intelligent Investor is notable today, with many famous investors praising it for helping them learn how to determine value in the stock market and successfully pick stocks for their portfolios. The main analysis of the book is focused on value investing, the allegory of Mr. Market, and determining value.[1]

Background and history[edit]

The Intelligent Investor is based on value investing, an investment approach Graham began teaching at Columbia Business School in 1928 and subsequently refined with David Dodd.[2] This sentiment was echoed by other Graham disciples such as Irving Kahn and Walter Schloss. Warren Buffett read the book at age 20 and began using the value investing taught by Graham to build his own investment portfolio.[3]

The Intelligent Investor also marks a significant deviation to stock selection from Graham's earlier works, such as Security Analysis. He explained the change as:

The thing that I have been emphasizing in my own work for the last few years has been the group approach. To try to buy groups of stocks that meet some simple criterion for being undervalued -- regardless of the industry and with very little attention to the individual company... I found the results were very good for 50 years. They certainly did twice as well as the Dow Jones. And so my enthusiasm has been transferred from the selective to the group approach.[4]

Analysis[edit]

Value Investing[edit]

Graham’s main investment approach outlined in The Intelligent Investor is that of value investing.[5] Value investing is an investment strategy that targets undervalued stocks of companies that have the capabilities as businesses to perform well in the long run.[3] Value investing is not concerned with short term trends in the market or daily movements of stocks.[6] This is because value investing strategies believe the market overreacts to price changes in the short term, without taking into account a company’s fundamentals for long-term growth.[3] In its most basic terms, value investing is based on the premise that if you know the true value of a stock, then you can save lots of money if you can buy that stock on sale.[7]

Mr. Market[edit]

One of Graham's important allegories is that of Mr. Market, meant to personify the irrationality and group-think of the stock market. Mr. Market is an obliging fellow who turns up every day at the shareholder's door offering to buy or sell his shares at a different price. Often, the price quoted by Mr. Market seems plausible, but sometimes it is ridiculous. The investor is free to either agree with his quoted price and trade with him, or ignore him completely. Mr. Market doesn't mind this, and will be back the following day to quote another price.

The point of this anecdote is that the investor should not regard the whims of Mr. Market as a determining factor in the value of the shares the investor owns. He should profit from market folly rather than participate in it. A common fallacy in the market is that investors are reasonable and homogenous, but Mr. Market serves to show that this is not the case. The investor is advised to concentrate on the real life performance of his companies and receiving dividends, rather than be too concerned with Mr. Market's often irrational behavior.

Determining Value[edit]

In The Intelligent Investor, Graham explains the importance of determining value when investing. In order to invest for value successfully and avoid participating in short-term market booms and busts, determining the value of companies is essential.[8] To determine value, investors use fundamental analysis. Mathematically, by multiplying forecasted earnings over a certain number of years times a capitalization factor of a company, value can be determined and then compared to the actual price of a stock. There are five factors that are included in determining the capitalization factor, which are long-term growth prospects, quality of management, financial strength and capital structure, dividend record, and current dividend rate. To understand these factors, value investors look at a company's financials, such as annual reports, cash flow statements and EBITDA, and company executives’s forecasts and performance.[2] This information is all available online as it is required for each public company by the SEC.[9]

Reception[edit]

Benjamin Graham is regarded as the father of value investing and his book The Intelligent Investor was highly regarded by the public and remains that way. Ronald Moy, professor of economics and finance at St. John’s University, explains that “The influence of Graham's methodology is indisputable. His disciples represent a virtual who's who of value investors, including Warren Buffett, Bill Ruane, and Walter Schloss”.[5] Warren Buffett is regarded as a brilliant investor and Graham’s best-known disciple.[10] According to Buffett, The Intelligent Investor is “By far the best book on investing ever written.” Ken Faulkberry, founder of Arbor Investment Planner, claims, “If you could only buy one investment book in your lifetime, this would probably be the one”.[10] Many of Graham’s investment strategies explained in the book remain useful today despite massive growth and change in the economy.[6] Scholar Kenneth D. Roose of Oberlin College writes, “Graham’s book continues to provide one of the clearest, most readable, and wisest discussions of the problems of the average investor”.[6] The Intelligent Investor was received with praise from economic scholars and everyday investors and continues to be a premier investing book today.

Editions[edit]

Since the work was published in 1949 Graham revised it several times, most recently in 1971–72. This was published in 1973 as the 'Fourth Revised Edition' ISBN0-06-015547-7, and it included a preface and appendices by Warren Buffett. Graham died in 1976. Commentaries and new footnotes were added to the fourth edition by Jason Zweig, and this new revision was published in 2003.[11]

  • The Intelligent Investor (Re-issue of the 1949 edition) by Benjamin Graham. Collins, 2005, 269 pages. ISBN0-06-075261-0.
  • The Intelligent Investor by Benjamin Graham, 1949, 1954, 1959, 1965(Library of Congress Catalog Card Number 64-7552) by Harper & Row Publishers Inc, New York.
  • The Intelligent Investor (Revised 1973 edition) by Benjamin Graham and Jason Zweig. HarperBusiness Essentials, 2003, 640 pages. ISBN0-06-055566-1.

An unabridged audio version of the Revised Edition of The Intelligent Investor was also released on July 7, 2015.[12]

Book contents[edit]

2003 edition

  • Introduction: What This Book Expects to Accomplish
  • Commentary on the Introduction
  1. Investment versus Speculation: Results to Be Expected by the Intelligent Investor
  2. The Investor and Inflation
  3. A Century of Stock Market History: The Level of Stock Market Prices in Early 1972
  4. General Portfolio Policy: The Defensive Investor
  5. The Defensive Investor and Common Stocks
  6. Portfolio Policy for the Enterprising Investor: Negative Approach
  7. Portfolio Policy for the Enterprising Investor: The Positive Side
  8. The Investor and Market Fluctuations
  9. Investing in Investment Funds
  10. The Investor and His Advisers
  11. Security Analysis for the Lay Investor: General Approach
  12. Things to Consider About Per-Share Earnings
  13. A Comparison of Four Listed Companies
  14. Stock Selection for the Defensive Investor
  15. Stock Selection for the Enterprising Investor
  16. Convertible Issues and Warrants
  17. Four Extremely Instructive Case Histories and more
  18. A Comparison of Eight Pairs of Companies
  19. Shareholders and Managements: Dividend Policy
  20. 'Margin of Safety' as the Central Concept of Investment
  • Postscript
  • Commentary on Postscript
  • Appendixes
  1. The Superinvestors of Graham-and-Doddsville
  2. Important Rules Concerning Taxability of Investment Income and Security Transactions (in 1972)
  3. The Basics of Investment Taxation (Updated as of 2003)
  4. The New Speculation in Common Stocks
  5. A Case History: Aetna Maintenance Co.
  6. Tax Accounting for NVF's Acquisition of Sharon Steel Shares
  7. Technological Companies as Investments
  • Endnotes
  • Index

See also[edit]

References[edit]

  1. ^'DAYOFBOOKS - ENJOY THE LIFE WITH BOOKS'. DAYOFBOOKS. Retrieved 2021-01-06.
  2. ^ abGraham, Benjamin; Jason Zweig (2003-07-08) [1949]. The Intelligent Investor. Warren E. Buffett (collaborator) (2003 ed.). HarperCollins. front cover. ISBN0-06-055566-1.
  3. ^ abcPopescu, Dan (2010). 'Warren Buffett, The Intelligent Investor'(PDF).
  4. ^'An hour with Mr. Graham: 'Imagine – there seems to be practically a foolproof way of getting good results out of common stock investment…''. 19 February 2013.
  5. ^ abMoy, Ronald (2011). 'Ben Graham Was a Quant: Raising the IQ of the Intelligent Investor (a review)'. CFA Institute.
  6. ^ abcRoose, Kenneth D. (1955). 'Review of The Intelligent Investor'. The Journal of Finance. 10 (3): 406–407. doi:10.2307/2976900. ISSN0022-1082.
  7. ^Hayes, Adam. 'Value Investing: How to Invest Like Warren Buffett'. Investopedia. Retrieved 2020-12-11.
  8. ^Sicsú, João (2020-01-02). 'Keynes and Graham's intelligent investor'. Journal of Post Keynesian Economics. 43 (1): 139–166. doi:10.1080/01603477.2020.1713009. ISSN0160-3477.
  9. ^'SEC.gov | HOME'. www.sec.gov. Retrieved 2020-12-11.
  10. ^ abKenFaulkenberry (2014-09-10). 'The Intelligent Investor Book Review in 30 Minutes'. Arbor Asset Allocation Model Portfolio (AAAMP) Value Blog. Retrieved 2020-12-11.
  11. ^Graham, Benjamin; Jason Zweig (2003-07-08) [1949]. The Intelligent Investor. Warren Buffett (collaborator) (2003 ed.). HarperCollins. p. vii. ISBN0-06-055566-1.
  12. ^The Intelligent Investor Rev Ed – via www.audible.com.

Further reading[edit]

  • Williams, John Burr. The Theory of Investment Value.
Retrieved from 'https://en.wikipedia.org/w/index.php?title=The_Intelligent_Investor&oldid=998652022'

When Warren Buffett comments about The Intelligent Investor book as “The best book on investing ever written,” I don’t think I should share a review. So, instead, I will share my views about the book.

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I don’t think I will share a review of the book The Intelligent Investor. The fact of the matter is, I won’t be able to justify a review.

The Intelligent Investor Pdflasopatriple

The Intelligent Investor Free

So, instead, I will share my views about the book and why every Indian retail investor should read this book at least once. However, if you want to be an intelligent investor, it is a book you should read once every few years.

I have read it more than once, and I can say there is so much more to learn each time I read it.

My Views of the Book – The Intelligent Investor

When Warren Buffett recommends reading this book to investors, it has to be an excellent book.

There is so much wisdom for any investor; it is one of the must-read books.

But one must understand, the book is not all about stock picking, but it is more about risk management through asset allocation and diversification along with having a margin of safety in your investment.

How essential is it to invest with a margin of safety? How you should buy from optimist of Mr. Market and sell it to the pessimist of Mr. Market.

The return from the market is not a factor of how much risk you take, but it is a factor of how much effort an investor has put in to study the investment.

I quote:

The rate of return sought should be dependent, rather, on the amount of intelligent effort the investor is willing and able to bring to bear on his task.

This is important.

If you aren’t able to work your way to understand the minute business details, it is tough for an investor to be intelligently investing.

Some Myth Bursts As We Read the Book

Are we an Investor?

We Indian retail investors know – one who invests for the long-term is an investor. I see people like to term six month long investors as well.

The book will clarify who is an investor and who is not.

An investor is the one who invests based on understanding the underlying business and nothing else.

It isn’t about investing based on PE ratio of the peers or a factor of how many months or years you remain invested. I share a similar view in my article on fundamental analysis as well.

The Intelligent Investor Principles

If you aren’t investing by understanding the underlying business, you are a long-term speculator as Benjamin Graham likes to put it.

Invest for the Future

The other concept we have among investor is, we are considering to invest in companies that are doing good.

Benjamin Graham has a view of not using past performance to judge the companies future potential.

The chances are, the past performance may be tough to replicate in the future.

Investing in the market is all about investing for the future. Past is gone. So always consider investing based on future prospects and growth.

Valuations

Always buy stocks which are available at a valuation below their intrinsic value.

Note, it is not below the price to earnings ratio of the peers.

So, if the value of the company is cheaper than the cash it can generate, it is the best possible investment.

Don’t try to time the market but remain invested.

At times, the market doesn’t get back to rewarding the earnings right when you thought it should.

Be patient and stay put. If you consider the investment still has the same value as the initial investment, the price movement is immaterial.

So many Earnings Per Share

Earnings per share have an entire chapter to let you understand the concept of it, but the example is from the ALCOA company of the US from 1970.

Though quite old, it seems still relevant.

We have so many EPS to consider like Basic EPS, diluted EPS, so on and so forth.

It is one chapter where the EPS will help you understand the intrinsic value. Again, we use the PE ratio, but what is more important is the earning per share.

Margin of Safety

The Intelligent Investor By Benjamin Graham Summary

The best part I like about the book is, it has a rule that you should not be losing. When you have the margin of safety, it is better to have a significant margin of safety, so you don’t lose a single penny of your investment.

We understand it is about winning more than loosing as investors but this book take that out of the equation of making a loss. It is all about investing right to make sure you are always winning.

The Intelligent Investor Original

Table of Content

Let me the table of content for you. This book doesn’t have many sub-headings within chapters.

So be prepared to read the chapters in a flow.

  1. Investment versus Speculation: Results to Be Expected by the Intelligent Investor
  2. The Investor and Inflation
  3. A Century of Stock-Market History: The Level of Stock Prices in Early 1972
  4. General Portfolio Policy: The Defensive Investor
  5. The Defensive Investor and Common Stocks
  6. Portfolio Policy for the Enterprising Investor: Negative Approach
  7. Portfolio Policy for the Enterprising Investor: The Positive Side
  8. The Investor and Market Fluctuations
  9. Investing in Investment Funds
  10. The Investor and His Advisers
  11. Security Analysis for the Lay Investor: General Approach
  12. Things to Consider About Per-Share Earnings
  13. A Comparison of Four Listed Companies
  14. Stock Selection for the Defensive Investor
  15. Stock Selection for the Enterprising Investor
  16. Convertible Issues and Warrants
  17. Four Extremely Instructive Case Histories
  18. A Comparison of Eight Pairs of Companies
  19. Shareholders and Management: Dividend Policy
  20. “Margin of Safety” as the Central Concept

Final Thoughts

Of course, it is a must-read book, and it will help you for sure to answer all your queries on selecting the right investment opportunities.

  • What should be the return on our investment and how to beat the inflation investing in equity.
  • How investing in bonds and FD can’t even beat inflation.
  • How aggressive should your portfolio be? Should it have bonds and what percentage of the bond should be part of your portfolio?
  • Why should we invest over time and intelligently? If not in stocks, then go with index funds.
  • The do’s and don’ts of an aggressive investor.

Without much of ado, go ahead and check out the book on Amazon India.