The Intelligent Investor

The Intelligent Investor, wrien by Benjamin Graham in 1949, is possibly the most important and influenal value invesng book ever wrien. A bible for all investors, it made the concept of invesng simple and easy to understand, so that even an ordinary individual could become an “intelligent investor”. The book is also famous for introducing two concepts into the invesng profession: the allegorical Mr. Market and the concept of “margin of safety.” Warren Buffet described it as “by far the best book ever wrien on invesng”. Key Take-Aways Ÿ Investors are of two main types: the “enterprising investor” and the “defensive investor” Ÿ It is important to understand the difference between speculaon and invesng Ÿ Enterprising investors should treat invesng like a business and commit their me and energy to the same Ÿ Most investors don't have the me to see invesng as a business. Hence, they must follow a defensive strategy Ÿ There is no evidence to suggest that market ming and forecasng work Ÿ Value investors must focus on the operang performance and dividends of the firm they own rather than the changing stock price Ÿ When measuring value, check the firm's earning ability. Then mulply and adjust the asset values Ÿ Shareholders must check the reliability of management Ÿ Stockholders are responsible for ownership. They also have certain rights. Hence, stockholders must employ them seriously and consistently Ÿ Always employ a margin of safety to limit your downside Be an Intelligent Investor – Understand the difference between Investment and Speculaon The intelligent investor is one that is paent, disciplined and eager to learn. They are also able to harness their emoons and think for themselves. “This kind of intelligence is a trait more of the character than of the brain." The first step towards being an intelligent investor is understanding the difference between invesng and speculang. Invesng entails a thorough analysis of an investment that includes determining the risk/return characteriscs of the asset. An investment has the ability to promise safety of principle and an adequate return. Speculaon, on the other hand, involves taking investment decisions that are not made on a foundaon of research and analysis and can consequently lead to a high probability of loss of capital. Investors should limit their allocaon to speculave posions (also known as "mad money account") to no more than 10% of the investment funds. Never mingle the money in the speculave account with the money in the investment account. “Stocks do well or poorly in the future because the businesses behind them do well or poorly - nothing more, and nothing less.” The intelligent investor will never exit a stock posion purely in response to share price movement. He / she will always first ask whether the value of the company’s underlying business has changed and then act accordingly. The intelligent investor only pays aenon to the current stock price when it suits him. The investor who permits himself to be worried by unjusfied market declines in his holdings is essenally transforming his basic advantage into a basic disadvantage. The speculator’s main interest is to ancipate and profit from fluctuaons in the market. The investor’s primary interest is to acquire and hold suitable securies at suitable prices. Invesng is not about beang others at their game, it’s about controlling