Benjamin Graham The Intelligent Investor: The Definitive Book on Value Investing. A Book of Practical Counsel

Content:

About the author: Benjamin Graham

Benjamin Graham – famous American economist and professional investor. His real surname was Grossbaum of Jewish origin. The surname Graham appeared in 1917, when the United States officially entered the First World War, many emigrants changed their surnames.

After graduating from Columbia University at age 20, he began a career on Wall Street in the company Newburger, Henderson and Loeb, has grown to a partner and eventually created his own investment fund Graham-Newman.

In the period 1928-1956, while doing the business of his company, Benjamin at the same time taught the course “Finance” at Columbia University. He taught a course on securities analysis. Based on these lectures, 5 books were written, 2 of which are still of great interest.

Graham is considered the “father of value investing”. Two of his works, “Security Analysis” and “The Intelligent Investor”, defined the investment philosophy for selecting undervalued stocks.

Benjamin Graham best student – Warren Buffett

I read “The Intelligent Investor” because the “Oracle” of Omaha advised as the basis of the basics, and called myself a disciple of Benjamin Graham.

Beginner at the time businessman Warren Buffett called the book “the best ever written about investment”. Years passed, Buffett became one of the largest investors in the world with a fortune of more than $ 100 billion, but did not change his mind. In the preface to the book, Warren Buffett speaks of the talented Benjamin and his ideas: «Follow the advice of Graham, and you will benefit from the quirks of the stock market, and do not turn into one of them. For me, he is not just the author of this book and the teacher. He influenced my life almost as much as my father». Warren Buffett says that the essence of value investing is the ability to “find an outstanding company at a reasonable price”.

Throughout his career, Graham had many famous students who subsequently achieved significant success in the investment world, such as: John Templeton, George Nicholson, Martin Zweig, Charles Brandes, as well as William J. Royne, Burt Alden, Irving Kahn and Walter J. Schloss, Seth Clarman and Bill Akman.

Book description «The Intelligent Investor»

Benjamin Graham The Intelligent Investor

The first edition of The Intelligent Investor was published in 1949. The work of Graham is reprinted every 5 years and is one of the most famous books on investing.

The author teaches to invest in securities and how to read the financial statements of companies. The book uses figures, facts, analysis over a long period of time. If you decide to start investing with stocks – you should definitely read. The author tells the information how to determine the undervaluation or overvaluation of the company. Benjamin developed and used the principle of value investing.

Value investing – strategy for choosing stocks that are traded on the market for less than intrinsic value.


Internal company value – share capital of the company, calculated as assets minus debt, plus the cost of the right to leave the company, if it is beneficial to the shareholder.

P/B ratio (price to book) – the ratio equal to the ratio of market price to book value per share.

P/E ratio (price to earnings per share) – the ratio of the market price to net income per share for the year.

As a rule, when investing in value, companies are chosen whose P/B and P/E ratios are below the industry average. Unfortunately, this method is already known and there may not be such companies on the stock market. But constantly emerging new markets, such as cryptocurrencies. The basics laid down in this book will allow you to find an approach to the valuation of any assets.

The author explains how the speculator differs from the inverter. This is done with specific examples and with detailed comments. If there are difficulties in understanding a chapter, then after it there is an adapted comment by Jason Zweig. The author defined the investment as an operation based on a thorough analysis of the facts, prospects, security of invested funds and sufficient income. All other transactions recognized as speculation.

Graham distinguishes between passive and active investor. Passive, often called defensive, invests cautiously, searches for securities and buys for the long term. Active is someone who has more time, interest and possibly specialized knowledge to find exceptional purchases in the market.

The author wrote that the owner of the shares should treat them as his share in the business. Keeping this in mind, the investor may not pay attention to price fluctuations, because in the long run the intrinsic value of the company is reflected in its price. Benjamin’s favorite allegory is Mr. Market. A guy who appears every day at the door of a securities holder, offering to buy or sell his shares at a different price. Usually the price quoted by Mr. Market seems believable, but sometimes ridiculous. The holder of securities may either agree with the quotation and trade with him, or completely ignore. Mr. Market does not mind this and will return the next day to indicate a new price. The fact is that one cannot consider the whims of Mr. Market as determining the value of shares owned by an investor. You need to profit from the stupidity of the market, and not participate in it. It is best for an investor to focus on the actual performance of their enterprises and receive dividends rather than worry too much about Mr. Market’s irrational behavior.

I think that this book is worth reading to anyone who uses money. It is rather an encyclopedia that everyone should have, regardless of strategy – long-term or speculative. The book is of interest to both individual and professional investors, as it offers a generalized, systematic view of trends that have been developing in the stock market for decades.

This book is the basis for understanding that investing is the way to prosperity. This is not a quick way, and if you approach everything with a cold head, then the risks will be small. When investing, you receive income from the real sector of the economy, and when you buy a share you become a co-owner of the company.

Ideas and Quotes

1. Separate investment and speculative account. Do not mix speculative ideas and investments. This fact applies not only to the trading account, but also to thinking, because these are completely different directions. It’s hard to see how an investment transaction hangs for several months unchanged. Unlike speculative ones, which are constantly up and down.Benjamin Graham The Intelligent Investor Quotes2. No one knows when the stock market begins to fall or rise. There are too many active forces on the market that push it in different directions. Therefore, one should not blindly trust analysts, in the world every day a lot of events significant for the economy happen and calculate the consequences of each, until even supercomputers can.Benjamin Graham The Intelligent Investor Quotes3. The author offers the legendary “investment formula”. Buy stocks every month for the same amount. This is a great way to get a position at an average price without worrying about expensive price.

4. Portfolio diversification. Distribute investments between the stock and foreign exchange markets. No one cancels crisis periods in which a reasonable investor transfers most of the portfolio to bonds or other less risky securities (it is useful to track the yield on 2- and 10-year US bonds). Worth considering assets asylum: gold, cryptocurrency.Benjamin Graham The Intelligent Investor Quotes5. Look at the P/E ratio. Shows how many years will be the return of capital through dividends. For example, Apple. The stock price is $ 200, earnings per share (EPS) $ 11.93, which means P/E = 16.76. This suggests that if you buy a share and the price will not rise, then you will receive 100% income from it only after 17 years. The task of a reasonable investor is to find reliable enterprises and preferably with a small P/E ratio. Everything in life is different, over the past 5 years, the price of Apple has grown 2.5 times and it’s a growth stock company, therefore, here the P/E coefficient does not matter.

To analyze the history of dividend payments and profitability, I recommend using the site dividend.com

Conclusion

The main idea: there are no short-term investors. Long-term investments are the only way to invest, and those who cannot keep stocks in their portfolio for at least several months are doomed to lose in the market. The book does not reveal the secrets of victory over the market, but teaches the following important things: minimize losses that cannot be avoided; increase the chances of making regular profits; learn to stop on time – excessive haste does not fully realize the potential of securities. Refusal from hyperactive actions and attempts to predict the future – the strongest quality and weapons in the stock market. In other words, to be an investor, not a speculator. In conclusion, I recommend reading the basics of technical analysis “Alexander Elder: The New Trading for a Living “.

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