Benjamin Graham

The Intelligent Investor


the intelligent investor summary

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The Intelligent Investor by Benjamin Graham, first published in 1949, is a widely acclaimed book on value investing, an investment approach Graham began teaching at Columbia Business School in 1928 and subsequently refined with David Dodd.

Who is this book for?

  • Readers who are interested in persuasive and leadership oriented books.
  • People who need to use persuasion to generate sales or inspire change.
  • Anyone interested to learn how to use why to get desired results.

Meet the author

Benjamin Graham (May 9, 1894 – September 21, 1976) was a British-born American investor, economist, and professor. He is widely known as the “father of value investing,” and wrote two of the founding texts in neoclassical investing: Security Analysis (1934) with David Dodd, and The Intelligent Investor (1949).

The Intelligent Investor Summary

An investor calculates the worth of stock; a speculator gambles on the stock.

Investment is used in contradistinction to speculation. An investment is an operation that after thorough analysis shows an adequate return while safeguarding the principal amount. Speculations are operations that don’t meet the requirements of an investment. Over the years, the term “investor” has had radical changes in its use.

The term investor is continually being used in Wall Street language to mean everyone who buys and sells shares or stocks regardless of the purpose and the price. The difference between investment and speculation is useful, and the current disappearance of the difference is raising concern.

Speculation is not entirely a bad thing since there is intelligent speculation. Unintelligent speculation includes; speculating when you are investing, speculating seriously instead of as a pastime activity, and risking more money than you can afford to lose.

Inflation has been fought actively in the recent years. Past experiences in the shrinkage of the purchasing power of the dollar have dramatically influenced the thinking of Wall Street. People with fixed earnings suffer more when the cost of living rises. For the holders of stocks, a decrease in the dollar’s purchasing power may be affected by the growth in their dividends and share prices. Due to these inflation effects, many financial authorities have made conclusions that; bonds are an inherently undesirable form of investment, and common stocks are more desirable investments than bonds.

Market History
As an investor, you should have an adequate idea of stock-market history. In particular, investors know significant fluctuations in its price level and the changing relationships in stock prices with their earnings and dividends. This history is necessary for putting him in a position to form great judgments on the positives and negatives of the market. The history shows the general changes in the stocks through the many cycles of times.

Offense is the best defense.

People have a used an old and sound principle that explains that those who cannot afford to take risks should accept the low returns of their investments. The policy has led to the thought that the amount of profit an investor aims for is proportional to the amount of risk they are ready to put into the investments.

However, this principle and thought are not agreed upon by everyone. Intelligent investors conclude that; the amount of returns is dependent on the amount of intellectual effort that the investor is ready to put into the investment. Being an investor depends on what kind of an investor you are rather than the type of investments you have. Being an intelligent investor involves continually researching, selecting and monitoring the different types of stocks and also creating a system that works for you without further effort.

Passive investors want both safety and freedom, but it consequently gives them minimum returns. Passive investors also called the defensive investors takes very little time or effort on their investments and expect huge profits. For maximum yields, alert and enterprising investors put in maximum investing intelligence and skills. They use a lot of time or effort in their investment strategies.

All investors want their investments list to be better than the average. Therefore they tend to look for financial advisors or analysts. The decisions of these analysts, however, is influenced to a great extent by their partialities and expectations or by the influence of placing their emphasis on one area of factors. Those who emphasize safety are mainly concerned with the prices in the market at the time of research.

Researching and choosing your stocks in the market is not essential. However, defensive investors tend to enjoy the “challenge” of picking their stocks.

Start off on defense, but you gradually move to offense.

The enterprising investor starts from the same place as the defensive investor. They begin by dividing their funds between high-grade bonds and high-grade common stocks that are bought at reasonable prices. They are prepared to branch out to other markets but with a valid reason.

Through experience, it is not advisable to buy a bond or stocks that lack enough security for the mere reason that they have an attractive yield. Many investors go for second-grade bonds and preferred stocks which defer from high-grade bonds in the number of times earnings have covered the interest charges. The second-grade bonds are the high-yield bonds that are mainly used by mutual funds.

Second-grade bonds and preferred stocks have two characteristics that investors must be aware of. They both have a likelihood of suffering dropping spells in weak markets, but most investors recover from the losses when the market improves.

Also called “junk-bonds,” Second-grade bonds charge high fees, and they lack effectiveness in preserving the principal investment amount. Most of the investors that try to pick stocks to realize they are poor at it late in the process.

Very few lucky investors learn they are not good at it early. Very few investors rip right from picking their stocks. Therefore, it is advisable to get help from analysts or through the index fund.

As an investor, if you want to pick your stocks, it is advisable that your practice before getting into the real thing. Take a year to track and pick stocks without using actual money. Test-drive the investment techniques before using real money for them. The mistakes made during this period will not be actual losses but learning lessons about discipline and what works for you.

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“The intelligent investor is a realist who sells to optimists and buys from pessimists.” 

― Benjamin Graham, The Intelligent Investor

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