The Intelligent Investor

The Intelligent Investor, in its last edition by Benjamin Graham, is a book whose acquaintance would have benefited me greatly had I come across it as a young man back when it was published in 1973.

As much a psychological guide to market investing as a technical one, Mr. Graham provides wise and emphatic counsel on when you should be excited to invest (not when euphoric markets reign) and the investments one should seek (not the hottest ones exciting everyone most). He demonstrates how to evaluate companies in order to become the defensive investor he believes most of us should be, with good advice for “enterprising” investors too. It’s a clarifying vision. And helpfully, this vintage volume was updated by Jason Zweig in 2003 show more with interesting footnotes and commentaries.

The Intelligent Investor also calls our attention to the pitfalls of uncritical belief and the vigilance necessary to avoid them. As an example, he acquaints us with the accounting malpractice employed by some business concerns, something investors can’t afford to ignore. Jason Zweig injects passion into the text when discussing dividends and stock buybacks, aiming scorching words at corporate chiefs who devalue the former practice and too often celebrate the latter.

Direct, intelligent, and even at times entertaining, The Intelligent Investor is a valuable aid for most anyone wishing to learn how to think over, with composure, the issues involved in making better investment decisions. show less

Most of the reviews I’ve read about the book only scratch the surface. Let me tell you this: this is the single source of investing guide you ever need.

That sounds like a bold statement, right? Obviously, there’s a catch. You need to read the book, cover to cover, appendices, commentaries, notes and all.

Benjamin Graham offers sufficient guidelines to start investing successfully, you just have to pay attention.

By reading all the references and all the comments (by the author or by Jason Zweig) you will learn everything there is to learn for: EPS, P/E, P/B, debt to equity, current ratio, dillution of stocks, financial statements shenanigans and much more.

I honestly dread every blog post and every reviewer who just resumes Benjamin show more Graham to: magic formula, Mr Market and market timing. He is about much more and you’ll soon find out how much false information there is online, by the sites that empower a magic formula or by those who twist his words.

In short, I honestly think The Intelligent Investor is a book that is a come-back book when re-calibrating or reviewing investment decisions.


Mentions: I have also read “The Interpretation of Financial statements” in parallel and also have a degree in basic accounting, so I might have found some info more comprehensible. show less

Summary of Topics
- Investment vs. Speculation
- Defensive Investment vs. Enterprising Investment
- Decent return for the Defensive: 4%
- Decent return for the Enterprising: 8%
- Investors are owners
- Margin of safety

Reception
A lot of the talking points in this book could easily be given at a talk on Slow Money [the alternative or new economy movement]. And yet what's so striking is that this book is also supposed to be the foundation of modern investment. How could this be, as the two are supposed to be opposites?

Well, most mainstream "investment" is actually speculation. And most Slow Money isn't that radical, but this is changing.

The book lays out two divergent strategies. The first is for the normal "defensive" investor. This strategy is show more largely passive, and focuses only on minimizing loss; impressive return is ignored.

The second is that of the "enterprising" and aggressive or full-time investor. Here the emphasis is still on minimizing exposure, but returns are expanded by heavily researching all possible pathways.

What's most interesting is not how the concepts of this book apply to investing, but how they apply to life. One of the key points is that, no matter how careful our calculations, some part of every decision is left to chance, and there's no way to eliminate this. So our best option is to align ourselves with those factors of which we will always be ignorant.

Much of the book is about dividends. Apparently they were the primary source of return back then. But it's gotten me thinking: how is it a good deal for a company to perpetually pay investors through dividends? Why not just pay them off? Dividends are essentially just debt service. show less

Benjamin Graham’s last line in The Intelligent Investor sums up the entire book in his trade-mark common-sense way: “ To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks.” First published in 1949, this version that I read was re-published in 2005 with a forward written by John Bogle who started Vangard Mutual Fund. Bogle’s forward serves as a very good summary of The Intelligent Investor, highlighting key points clearly. So I found it useful to read the forward again after finishing the book as a quick refresh of its content. Graham’s language may be a bit old fashioned, so some may find his writing style takes a little bit of getting used to. show more However, once I got my pace of reading going, I find the old fashion style gives me a sense of comfort and assurance – as if a grandfather was sharing all his valuable experience with me. Certainly good things stand the test of time, just as sound values: “Sound investment principles generally produced sound investment results…we must act on the assumption that they would continue to do so.” Graham is very clear form the start that he is not writing for speculators but for the layman who wants to have a sound approach to grow his weath steadily. He believes that lay investors can achieve “a creditable if unspectacular result with a minimum of effort and capability…since anyone – by just buying and holding a representative list – can equal the performance of the market averages…” He warned those who tries to beat the market, as many smart people have tied to do this and failed. How he explained this makes a lot of sense to me - every stock market broker thinks he can outdo the market. That means the stock market experts as a whole is trying to beat itself – a logical contradiction. They just cancel each other out. Thus, one should not rely on a financial advisor who promises the sky and raise your hopes that he can do better that the market average. That, claims Graham, is not possible. “The real money in investing will have to be made, as most of it has been in the past, not out of buying and selling but out of owning and holding securities, receiving interest and dividends and benefiting form their longer-term increase in value.” Graham chastises average investors for their sloth and ignorance, for willingly giving up their responsibility and rights as business owners to management. This, he feels, is due to the institutionalisation of financial services which has left investors a step removed from ownership. He disagrees with the commonly held view that “If you don’t like the management, sell the stock.” He feels this does nothing to improve bad management, only puts down the price of the stock and shifts the ownership to someone else. “Investors as a whole seem to have abandoned all claim to control over the paid superintendents of their property.” Ultimately, it is important for investors to give themselves a margin of safety by buying a stock at a price that is lower that its appraised value and to diversify the portfolio. These would put the investors in good stead, as against speculators. I like this book. It does not give you many formulas for security analysis (Graham says you can read further in his earlier book Security Analysis). What The Intelligent Investor does is that it lays the foundation for laymen by giving a sound approach to investment, written with common sense and simplicity. show less

The Intelligent Investor serves as a foundation for anyone interested in learning about investing. It is dated but there are universal concepts that remain true today. The revision brings some needed updates with great discussion on the dot com bubble. What I gained from reading this is investor behavior has not changed and there are many speculators in the market. In the current bull market, there is a optimism in companies that Graham would not find financially sound. Many people are seeking the next Amazon or Facebook. The important takeaway is timing the market is less important than finding companies that represent good value with potential growth. This book is not designed to tell the reader what exact stock to buy but instead show more give perspective on a healthy view on investing. show less

Not at all what I expected. I've been investing in index funds and government bonds for decades and I expected Graham to convince me to do otherwise - to show me that it's possible to beat the market. Instead he argues - quite convincingly - that passive investing (what he calls a "defensive portfolio") is what makes most sense unless you're willing to spend several hours a day inspecting companies' fundamentals (and even then there's a good chance that the market will beat you).

Not an entertaining reading though. Graham subjects the reader to long, detailed discussions of stock prices in the US in the late 1960s. There are useful, timeless lessons in those boring discussions but fleshing them out yourself would require a lot of show more patience. So I'm really thankful to Jason Zweig for his commentary of each chapter. He neatly summarizes Graham's main points and makes them much more digestible for us impatient readers. He also updates Graham's analysis with more recent examples - Enron, the dot-com bubble, etc. And he also provides some systematic evidence to Graham's claims (which are often anecdotal).

If you're considering an audio version, pick the one narrated by Luke Daniels. show less

Don't know how to rate a book like this: it won't appeal to everyone but it was exactly what I was looking for -- something like "stock investing from first principles". The main text of this book was last updated in 1972, but this edition includes 2003 commentary from Jason Zweig. Helpful to get a long view into how stock and bond markets operates over long periods of time. Lots of the advice (esp bond advice) is US-specific. Main thesis is: don't put money into stocks based on your expectations of future market prices, buy stocks as if you were buying a tiny chunk of the company. When doing so, buy stocks that are obviously underpriced compared to value, because then there's more room for something to go wrong. It's got one or two show more good fundamental ideas, and then proceeds to apply and unpack those as they apply to various situations. It's mostly well written and pretty engaging. show less