The Intelligent Investor by Benjamin Graham (Investing Book Review)

"There is no such thing as a good or bad stock; there are only cheap stocks and expensive stocks. Even the best company becomes a “sell” when its stock price goes too high, while the worst company is worth buying if its stock goes low enough."

The Intelligent Investor is the classic text on value investing, and author Benjamin Graham is its father. The Revised Edition features a preface and appendix by Graham’s top protégé Warren Buffett (who says it is “by far the best book on investing ever written”), and helpful commentary by Jason Zweig to explain and contemporize the writing.

If you do not have the patience to plod through the 500+ pages of this tome, you can: 1. Take it as a sign you are not likely to excel at fundamental value investing, and 2. Follow Buffett’s advice and just read Chapter 8 on Mr. Market and Chapter 20 on Margin of Safety to grok the key concepts of value investing.

Key Takeaways

1. Don’t have a relationship with Mr. Market if you cannot face his manic-depressive mood swings with equanimity.
2. Investing with a margin of safety protects investors against large and sudden losses of wealth.
3. “You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning are right.”
4. Treat investing like a business – analyze the fundamentals, crunch the numbers, and approach it rationally.
5. The best company can become a bad stock if its stock price goes too high, while the worst company can become a good stock if its stock price is low enough (unless it goes to zero).

Book Highlights

"In the financial markets, the worse the future looks, the better it usually turns out to be."

"There is a great advantage for the young capitalist to begin his financial education and experience early. If he is going to operate as an aggressive investor he is certain to make some mistakes and to take some losses. Youth can stand these disappointments and profit by them."

"The kind of securities to be purchased and the rate of return to be sought depend not on the investor’s financial resources but on his financial equipment in terms of knowledge, experience, and temperament."

"An elementary requirement for the intelligent investor is an ability to resist the blandishments of salesmen offering new common-stock issues during bull markets."

"The investor who permits himself to be stampeded or unduly worried by unjustified market declines in his holdings is perversely transforming his basic advantage into a basic disadvantage. That man would be better off if his stocks had no market quotation at all, for he would then be spared the mental anguish caused him by other persons’ mistakes of judgment."

"It is far from certain that the typical investor should regularly hold off buying until low market levels appear, because this may involve a long wait, very likely the loss of income, and the possible missing of investment opportunities. On the whole it may be better for the investor to do his stock buying whenever he has money to put in stocks, except when the general market level is much higher than can be justified by well-established standards of value."

"Nothing important on Wall Street can be counted on to occur exactly in the same way as it happened before."

"Nearly everyone interested in common stocks wants to be told by someone else what he thinks the market is going to do. The demand being there, it must be supplied."

"Experience has shown that in most cases safety resides in the earning power, and if this is deficient the assets lose most of their reputed value."

"One of the most persuasive tests of high quality is an uninterrupted record of dividend payments going back over many years."

"The investor cannot have it both ways. He can be imaginative and play for the big profits that are the reward for vision proved sound by the event; but then he must run a substantial risk of major or minor miscalculation. Or he can be conservative, and refuse to pay more than a minor premium for possibilities as yet unproved; but in that case he must be prepared for the later contemplation of golden opportunities foregone."

"The risk of paying too high a price for good-quality stocks – while a real one – is not the chief hazard confronting the average buyer of securities. Observation over many years has taught us that the chief losses to investors come from the purchase of low-quality securities at times of favorable business conditions."

"There is no such thing as a good or bad stock; there are only cheap stocks and expensive stocks. Even the best company becomes a “sell” when its stock price goes too high, while the worst company is worth buying if its stock goes low enough."

"Investment is most intelligent when it is most businesslike."

"You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning are right."

"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder that it looks."

"By refusing to pay too much for an investment, you minimize the chances that your wealth will ever disappear or suddenly be destroyed."