The Intelligent Investor is decidedly one of the most talked about books on investment.
Written way back in 1949, this book has almost achieved a ‘classic status’ today.
It has inspired generations of investors to try their luck in the market.
This book managed to touch every type of investor across Wall Street and the world over.
In fact, it will not be wrong to say it is one of the most influential books in modern times.
It etches out the principles of effective investment like no other book.
In many ways, you can say this is more like a handbook for investment principles.
It lays down the rules of prudent investment and effective financing.
What’s particularly interesting is the timeless element in this book.
The world has come a long way from the distant 1940s.
Value systems have overhauled completely, and the economic scenario has changed too.
However, what has not changed is the appeal of ‘The Intelligent Investor.
It continues to excite market participants into charting fresh territories.
But The Intelligent Investor review is incomplete without a mention about its author.
Benjamin Graham is perhaps not as talked about as his illustrious protégé.
Can you guess who this protégé is?
Well, it is none other than the illustrious Oracle of Omaha, Warren Buffett.
Yes, the man who wrote the bible of investment is also Buffett’s mentor and professor.
Benjamin Graham is also known as the father of Value Investing.
It will not be wrong to say that he introduced the concept of margin of safety.
He turned the science of investment into practically an art.
No wonder Buffett said that it is, “the best book on investing ever written.”
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Primary Objective of the Intelligent Investor
The author always has a specific purpose and end in mind.
Often that is what determines the structure and flow of the book.
In many ways, this also highlights the key motivation for the author.
Needless to mention that this objective also forms the foundation of a great book.
This objective clearly dictates the degree of acceptance and the quality of overall impact.
Ben Graham too had a clear objective in mind when he penned down this book.
His primary objective was to create a handbook of great investment policies for investors.
His idea was to create an achievable investment dream for ordinary people.
Investment success was no longer the bastion of the elite few.
He practically made it a household concept.
Whether you are sitting on pots of money or none at all, Graham created an investment manual for all.
No doubt, ‘The Intelligent Investor’ is very successful in simplifying some crucial market concepts.
Graham was the first to talk about fundamental valuations in this book.
The average investor lost a lot of money in trying to follow trends and beat the market.
But Graham empowered them with the concept that rose above herd movement in markets.
He gave his readers the keys to a great investment.
It is not about strategy or timing.
He highlighted the need to go for intrinsic value and long-term prospects.
That, in itself, becomes the definitive point of the entire book and his brand of investing.
Graham teaches investors the key elements that can enhance their overall return expectation.
In many ways, it also helps eliminate some key conceptual errors.
Most importantly, you are not chasing the market anymore.
It gives a more fundamental hue to your investment.
Key Points to Emphasize On
If you have read the Intelligent Investor, you already know that the entire book heroes three cardinal points.
So, any Intelligent Investor review is incomplete without a mention of these concepts.
They go on to create new normals for the average investor.
They compel an investor to unlearn everything that they have learned thus far and rediscover the basics.
That, in many ways, becomes the core value of the investment.
The fact that the Intelligent Investor remains relevant even today bears testimony to the truth in these principles.
They are the pillars of good investment and profitable finance plans.
1. Margin of Safety
Most times you will notice that investors lose money due to over leveraging.
This is exactly where this unique but popular concept seeks to make a difference.
Valuation analysis can help gauge the degree of risk appropriately.
It will then also help take proper safety margins.
This is what will help investors prepare better for sudden loss or any other market upheaval.
You can also look at maximizing the opportunities to improve the safety margin.
2. Risk Management
This is undeniably the most important part of an efficient investment.
Graham claims that risk management via a multi-pronged approach is crucial.
It highlights the quality and consistency of the investment plan.
Diversification and asset allocation are Graham’s favorite armory.
He emphasizes that effective risk management is possible only through these two means.
They help investors get a realistic view of the risk involved and best ways to manage them.
3. A Disciplined approach
Just like fiscal discipline is important for running a smooth economy, disciplined investment is crucial.
You cannot invest on whims and fancies.
You have to consider the various pros and cons and take a disciplined approach.
This also helps investors in making some fundamental investment mistakes.
The Intelligent Investor Layout
Have you ever wondered what improves the readability of a book?
Why are some books so painful to read while there are some that are smooth.
You can attribute this to many reasons.
But one of the most important factors may be the use of language.
If the language is common, colloquial and part of regular usage, readers can associate with it better.
Another very important element is the overall layout of the book.
The readability of the book can improve significantly if the layout is proper.
This is why the Intelligent Investor review needs to make a special mention of it.
The chapters are divided in a logical fashion, and every topic leads to the next one.
This has surely created better prospects of readability.
You can broadly divide the book into 8 parts.
Every part heroes one specific element and helps investors grasp the concept effectively.
This is why it surely improves the acceptance of the book across a wide cross-section of readers.
This first part talks about inflation, speculation and how market history evolved.
Now we come to Graham’s description of different types of investors.
This part talks about the Defensive Investor primarily.
The next part identifies the Enterprising Investor.
The idea is to segregate the various investment patterns Vs types of investors.
We then go through some key elements of the market.
Most importantly it mentions fluctuation and how it impacts trading sentiment.
The next part broadly discusses the various types of funds and the advisors associated.
Selecting the investment tool is also crucial.
The Intelligent Investor brings to focus the concept of value.
It ends with the most important element of investment, the margin of safety.
The Defensive Investor in Graham’s the Intelligent Investor
In the very first chapter and through the book, Ben Graham highlights some key features.
The first among many is undeniably the concept of the Defensive Investor.
This is one of the key investment approaches too.
Graham also refers to the investors as ‘passive investors’ in the book.
Graham observes that typically this type of investors only go for high-quality stocks.
These normally belong to large corporates and are often the stalwarts in their segment.
In other words, these passive investors usually opt for bluechip stocks.
This type of investors normally looks for stocks with a proven track record of great results and dividend payout.
But they are not happy with 1 or 2 such companies.
They invariably buy position in at last 10-30 such counters.
This is how they look at spreading the overall risk in their investment.
Probably ETF as a concept did not exist at the time Graham wrote this book.
But this cluster of 10-30 bluechips surely points to that direction.
In this context, Graham also mentions investment in good quality bonds.
This is because the US Government bonds are considered practically risk free.
Optimal asset allocation is also another key element discussed here.
Simplicity in approach is crucial for a defensive investor.
This can be partly attributed to the investor’s limited exposure to market dynamics.
They may be investing for a long time, but their market understanding is limited.
Moreover, they may not be too keen on researching for stocks either.
Dollar cost averaging is one of their most favorite investment technique.
Instead of constantly looking for new investment counters, they keep investing in the same stock.
Steady investment at regular intervals ensures reasonable profitability for them.
Most times they are more than happy with it.
The Intelligent Investor talks about the other key investor in the game, the enterprising types.
In many ways, they are also very different from the defensive investors.
They are far more aggressive in their approach.
However, Graham mentions that this is not a path that all investor should embrace.
It needs a detailed understanding of the overall market dynamics.
They need to identify the undervalued counters and buy them.
Analysis and research form the key foundation of their investment principles.
They will look at a variety of valuation parameters like PE and book value.
That will help identify the high return counters.
In this context, they may not always choose high-quality companies.
They may sometimes even go for stocks that are not regarded as high grade.
These are primarily special situations where a stock may be available in small quantities.
Moreover, the investor has a fairly good idea of the extent of risk that they can take on.
But the rule of the thumb indicates that an enterprising investor has to be far more cautious.
They have to be careful about choosing only growth stories.
After all, they are not just choosing popular names.
Sometimes, they may tread on the road less traveled in lieu of better gains.
So the investment outlook is ambitious, the resultant risk is also huge.
The market swings can often bring about robust profit.
But that is a calculated risk that an enterprising investor takes.
Graham points out that on an average the ground rule is keeping emotions under control.
Knowledge about the markets and control over emotions are the key rules of the game.
Together they can help lock in profit.
Most importantly, the pricing of the stock has much greater value.
Timing a trade is not so important while investing.
Margin of Safety
The Intelligent Investor review is not complete without a mention of margin of safety.
Come to think of it; this is a rather simple concept.
In fact, this thought forms the basis of most long-term investment concepts.
As an investor, you sometimes buy stocks far below the fair price levels.
This is primarily to ensure a higher rate of return.
So the cheaper the price of a stock is, better the rate of return.
Moreover, it also often indicates a lower amount of loss if the trade reverses.
But you rarely end up losing the entire capital involved.
Often the loss amount is a small price that you pay for missing out choosing a better investment.
So the margin of safety is often the amount of loss you are ready to stomach in hope of better returns.
The Intelligent Investor goes on to explain that margin of safety can be calculated in two ways.
Investors can both gauge the asset price and then base a buying price that offers at least 50% discount.
The other option is comparing the yield between stocks and bonds.
But both these factors are not fool-proof.
They are dependent on a variety of factors and inconsistencies are not unheard of.
In that context, diversification of position plays a crucial role for investors.
But diversification alone cannot limit your loss prospects.
You may have a well-diversified set of stocks.
But if they are not priced efficiently, you can suffer deep losses.
In case of a fall in markets, your portfolio can suffer despite the diversification
That is why Graham emphasizes the need to balance both these elements carefully.
That alone can help you realize the right amount of profitability from an investment.
This surely helps investors develop a clearer perspective on investment.
Value Investment Decoded
In very simple terms, The Intelligent Investor is all about decoding the principles of value investment.
It introduces a so-called difficult concept and carefully weaves it with the popular concept to highlight the essence of quality investment.
Value investment is all about realizing better value from your investment endeavors.
Whether you are a beginner or a seasoned investor, it is essential to keep in mind.
But often this is the key point where many investors stumble and fall.
It creates a distinct prospect for a potential loss scenario.
But Graham guides his readers towards a relatively hassle-free journey towards profitability.
This is where the Intelligent Investor highlights the basics of great investment.
Look out for analyzing fair value of stocks.
Be conscious of the price that you pay for the stock.
The stock price needs to be below these fair value levels.
The dividend policy is an additional bonus.
When you are buying stocks, always watch out for this element.
Lastly always look at diversifying the risks.
If you pay careful attention, Graham insists that these are some of the most important factors to remember.
Somehow they always ensure better profitability and lasting gains.
It is what creates stronger portfolios with a higher return prospect.
The Intelligent Investor review is a humble effort to decode Graham’s timeless work.
Profit and investment success continues to be the guiding motivation for investors.
Probably that is the reason they are always so keen on reading and knowing about successful investors.
Benjamin Graham that way is the father of modern investment basics.
What is particularly astonishing is the vision that he charted out so many years ago.
What is surprising is that it still stands true and relevant.
So if you want to hone your skills in the market, go grab your copy of the Intelligent Investor.
If you think you don’t have the time to read it, make sure you read the Intelligent Investor review above.