Intelligent Investor by Benjamin Graham
What does this book expect to accomplish
This book is a layman guide, if you are theists, this book is the Bible or Bhagavad Gita for investors. Chief attention of this book paid to Investment principles and Investor’s attitude. It talks more about investment patterns over many decades how stocks and bonds behaved because they believe “Those who do not remember the past are condemned to repeat it” statement is more true and better applicable to Wall Street. In the beginning, this book says at the outset that this is not “How to make millions” and not for speculators who watch trends and trade stocks and bonds based on the dip and rise of the market. He declares that this approach is as fallacious as it is popular.
This book is revised many times at intervals of five years approx. to address six new developments since 1965 edition was written
1) Strangely interest rates advanced higher for high-grade bonds
2) A massive decline of leading common stocks in 30 years
3) Inflation is persistent which is proportional to the decline of general businesses
4) Novelties in business and rapid development of multi-industry companies operating under one corporate group
5) Established companies are not able to meet up long and short term obligation and their position under wall street
6) Performance of the management fund and trusted funds produces disquieting results.
The above phenomena are carefully considered and conclusions are redefined from the previous edition. But the underlying principles of sound investment is not altering from decade to decade, but the application of these principles is adapted to significant changes in the financial mechanisms and climate. Their recommendation is that leading common stocks are bought at any price, at any time with the assurance not only of ultimate profit but with any intervening loss would be recouped to new high levels by renewed advance.
In the past, the book addressed two kinds of investor 1) Defensive -a passive investor who is very cautious and avoid frequent decisions 2) Enterprising — an active investor who is skillful and care to the selection of stock decision. Over many decades an enterprising investor of this sort could expect a worthwhile reward for his extra skill and effort, in the form of a better average return than that realized by the passive investor. There is a doubt whether a really substantial extra recompense is promised to the active investor under today’s conditions. But next year or the years after may well be different. The book shall accordingly continue to devote attention to the possibilities for enterprising investment, as they existed in former periods and may return.
The book guides us on how investment choice should be in general with below strong lines.
“It has long been the prevalent view that the art of successful investment lies first in the choice of those industries that are most likely to grow in the future and then in identifying the most promising companies in these industries.”
The art of investment has one characteristic that is not generally appreciated. A creditable, if unspectacular, the result can be achieved by the lay investor with a minimum of effort and capability; but to improve this easily attainable standard requires much application and more than a trace of wisdom. If we merely try to bring just a little extra knowledge and cleverness to bear upon your investment program, instead of realizing a little better than normal results, we may well find that we have done worse.
What does intelligent means intern of investing by Benjamin Graham? It simply means being patient, disciplined, and eager to learn; you must also be able to harness your emotions and think for yourself.
Their main objective will be to guide the reader against the areas of possible substantial error and to develop policies with which he will be comfortable. “The fault, dear investor, is not in our stars — and not in our stocks — but in ourselves. . . .”
Graham’s sober words of warning:
“ Obvious prospects for physical growth in a business do not translate into obvious profits for investors.”
“The experts do not have dependable ways of selecting and concentrating on the most promising companies in the most promising industries.”
I was recommended by the FIRE community to read this book before pursuing Financial independence. The financial Independence path involves investment in stocks and bonds which will be your assets for the rest of your life. If you are not prepared mentally, then you will lose your hope. It is very thorough and Graham not only broke down the technical aspect of investing but the human psychology aspect as well.
