Book Summary: The Intelligent Investor by Benjamin Graham

The Intelligent Investor is widely regarded as the definitive book on value investing. The book provides strategies for using value investing successfully on the stock market. 

This book has historically been one of the books of the most popular investment and Graham’s legacy lives on.

In 1928, Graham began teaching value investing at Columbia Business School, which was further refined with David Dodd. Walter Schloss and Irving Kahn echoed this sentiment as well. 

Having read Graham’s book at age 20, Buffett started using value investing to construct his own investment portfolio.

Similarly, Graham’s work, such as Security Analysis, marked a significant departure from his earlier works on stock selection. He explained the change as follows:

“The thing that I have been emphasizing in my own work for the last few years has been the group approach. To try to buy groups of stocks that meet some simple criterion for being undervalued — regardless of the industry and with very little attention to the individual company… I found the results were very good for 50 years. They certainly did twice as well as the Dow Jones. And so my enthusiasm has been transferred from the selective to the group approach.”

You may be wondering if you should read the book. This book summary will tell you what important lessons you can learn from this book so you can decide if it is worth your time.

At the end of this book summary, I’ll also tell you the best way to get rich by reading and writing

Without further ado, let’s get started.

The Intelligent Investor Book Summary

In 1949, Benjamin Graham published The Intelligent Investor. The book is widely regarded as the best investment advisor of the twentieth century and has inspired people around the world.

This book, The Intelligent Investor by Benjamin Graham, has become a stock market bible because of Benjamin Graham’s philosophy of value investing, which guards investors against making costly mistakes. Also, Graham helps people devise long-term strategies to achieve their financial goals.

A smart investor is either an enterprising investor or a defensive investor, according to the author. The entrepreneurial investor aims to beat the market by finding and investing in highly undervalued stocks, while the defensive investor settles for matching the market by diversifying. A must-read for anyone wanting to learn more about investing.

Smart investors must be better informed than their competition if they want to beat the market. Those who attempt to beat the market average without the necessary skills and knowledge are likely to do poorly. As a result, most of us would be better off settling for the stock market’s annual average return of around 10%.

As an investment approach, Graham began teaching value investing at Columbia Business School in 1928 with David Dodd. The Intelligent Investor was published in 1949 by Graham and Dodd. This is a list of some of its key lessons.

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Lesson 1: An intelligent investor examines the long-term value of a company rationally, not impulsively.

Investing can be a great way to make money, but it also carries a lot of risk. There are many examples of successful investors, like Warren Buffett, who have made a lot of money by investing in the right companies. However, there are also many people who have lost everything by making poor investment decisions. So, is the potential reward worth the risk? It can be, if you follow a smart investment strategy.

Intelligent investors do thorough research and analysis before making investment decisions. They focus on long-term growth rather than short-term market fluctuations. This is different from speculation, which is risky because the future is unpredictable. For example, a speculator might hear a rumor that a company is about to release a new product and buy a lot of stock based on this rumor. If the rumor turns out to be true, they might make a lot of money. If it’s false, they could lose a lot.

Intelligent investors, on the other hand, look at the price of a stock in relation to its intrinsic value, or the company’s potential for growth. They only invest in a stock if they believe the price is lower than the potential return they can expect as the company grows.

This is similar to shopping for a dress. If you’re going to spend a lot of money on a dress, you want to make sure it’s high quality and will last for a long time. If the quality is poor, it might be better to spend less on a cheaper dress that will last just as long.

Smart investing isn’t always exciting, but the goal is to make money, not to have a thrilling life.

Lesson 2: Three principles underlie intelligent investing.

Smart investors follow these three principles:

  1. Before buying any stock, they research the long-term development and business principles of the company. This includes looking at the company’s financial structure, the quality of its management, and its dividend policy (how it distributes profits to investors). It’s important to consider the long-term performance of the company rather than just focusing on short-term earnings.
  2. They diversify their investments to protect themselves from serious losses. Even if a stock looks promising, it’s not a good idea to put all your money into it. If something goes wrong with the company, you could lose everything. Diversifying your investments means that you won’t lose everything at once if something goes wrong with one of your investments.
  3. They aim for safe and steady returns rather than trying to outperform Wall Street professionals. It’s not realistic to expect to beat professional traders, and trying to do so can lead to greed and carelessness. Smart investors focus on meeting their personal financial goals rather than chasing big profits.

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Lesson 3: Stock-market history is important to intelligent investors.

Before investing, it’s important to not just look at a stock’s history, but also consider the overall trend of the stock market over time. The stock market is known for its ups and downs and these fluctuations can be unpredictable. As an investor, it’s important to be mentally and financially prepared for this unpredictability.

It’s also a good idea to have a diverse portfolio of stocks so that if one stock loses value, it doesn’t have a huge impact on your overall investments.

In addition, you should be mentally and emotionally prepared for tough times in the market, like a crash. Don’t panic and sell everything at the first sign of trouble. Instead, remember that the market has always recovered after even the most devastating crashes.

When you’ve determined that the market is stable, you can then look into the history of the specific company you’re considering investing in. Look at factors like the stock price, earnings, and dividends over the past ten years. Take into account the inflation rate, or the overall increase in prices, to see how much you’ll really earn on your investment. For example, if you calculate a 7% return on investment in one year, but the inflation rate is 4%, you’ll only earn a 3% return after accounting for inflation. This may not be worth the effort.

In summary, having a good understanding of history can help you make smart investment decisions. Make sure to keep your knowledge sharp.

Lesson 4: Don’t rely on the crowd or the market.

It can be helpful to think of the stock market as a person, Mr. Market, to understand its unpredictable and moody behavior. Mr. Market is easily influenced and tends to swing between overly optimistic and overly pessimistic views. For example, when a new iPhone is released, people get excited and the stock market reflects this excitement with rising prices and people being willing to pay more.

Sometimes the market becomes too optimistic, causing stocks to become overpriced based on unrealistic expectations for future growth. On the other hand, the market can also become overly pessimistic, causing you to sell in unnecessary circumstances.

To be a smart investor, you need to be a realist and not get caught up in the market’s mood swings. It’s important to remember that just because a stock is currently profitable doesn’t mean it will stay that way. In fact, stocks that have performed well in the past may be more likely to lose value in the future because demand can drive the price up to unsustainable levels.

It’s easy to get swayed by short-term gains, especially when profits are consistently rising. We tend to see patterns and assume they will continue, even when there is no actual pattern.

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Lesson 5: Defensive investors need portfolios that are well-balanced, safe, and very easy to manage.

When you start investing, it’s important to choose a strategy that’s right for you as an individual. One option is to be a defensive investor, which means you prioritize safety over high returns and are willing to accept lower profits in exchange for less risk.

As a defensive investor, your first step should be to diversify your investments. This means investing in both stocks and bonds, with a balanced split between the two. For example, you might aim for a 50-50 split between stocks and bonds, or if you’re extremely risk-averse, you might choose a 75-25 split in favor of stocks. Bonds are generally more secure but offer lower profits, while stocks are less secure but have more potential for rewards.

In addition to diversifying between stocks and bonds, you should also diversify your portfolio of stocks by investing in a variety of large, well-known companies with a history of success. A good rule of thumb is to invest in at least ten different companies to reduce your risk.

To make the process of diversifying your stock portfolio easier, you can consider aligning it with the portfolios of successful investment funds. This doesn’t mean you should blindly follow trends, but rather choose investment funds with a proven track record of success.

Finally, consider hiring an expert to help you make informed investment decisions. They have more experience and can provide valuable guidance.

By following these simple principles, you can minimize risk and achieve positive outcomes in the long run.

Lesson 6: Following a formula makes investing easy.

Once you’ve chosen your investment companies, it’s time to decide how much money you want to invest regularly and keep track of your stocks. One way to do this is through a process called formula investing, where you follow a predetermined formula to determine how much and how often you’ll invest. This can include dollar-cost averaging, which involves investing the same amount of money each month or quarter in a specific stock.

To make this process easier, you can set up your investments on autopilot once you’ve found a stock you feel is safe and secure. For example, you might decide to invest $50 every few months and buy as many stocks as you can with that amount. This way, you don’t have to constantly monitor your investments or make impulsive decisions.

However, one downside of formula investing is that it can be emotionally challenging. You may not be able to buy more stocks even if the price is low because you’ve already reached your predetermined spending limit.

As a defensive investor, it’s still important to periodically check your investment portfolio to make sure it’s performing well. You should aim to rebalance your stock and bond allocation every six months, and consider consulting with a professional once a year about adjusting your funds.

By following these steps, you can start your journey as a defensive investor and be on your way to success. 

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Lesson 7: Entrepreneurial investors start similarly to defensive investors.

As an enterprising investor, you should still have a balanced portfolio that includes both stocks and bonds, like a defensive investor. However, you’ll likely invest more heavily in stocks, which offer higher profits but also come with more risk. It’s also a good idea to work with a financial planner, but as a partner rather than just following their guidance.

In addition to stocks and bonds, enterprising investors may also consider other types of stocks with higher risk and potential for higher rewards. For example, you might come across a startup that has the potential to become the next Google. While this could be a great opportunity, it’s important to remember to limit these types of high-risk investments to no more than 10% of your total portfolio.

It’s also important for enterprising investors to continuously research and monitor their portfolios to ensure they are generating income.

Keep in mind that even the most intelligent investors make mistakes, and sometimes the market is too unpredictable to make reliable predictions. By setting limits and being cautious, you can protect your capital in the event of a recession or a poor investment.

Lesson 8: Enterprising investors don’t follow the market’s ups and downs.

As an investor, it’s natural to wonder whether you should sell your stocks if their price drops or hold on to them. It’s also common to consider getting in on another stock’s rise before it’s too late. However, an intelligent investor knows that it’s dangerous to blindly follow the market or trust in Mr. Market’s mood swings.

In some cases, a stock’s price may rise rapidly due to overvaluation or risky investments. This can be seen in the housing bubble in the United States, where prices continued to rise beyond their intrinsic value and eventually caused the entire market to collapse.

Enterprising investors aim to avoid this by buying stocks when their prices are low and selling when they are high. It’s important to regularly examine your portfolio and the companies you invest in to ensure that management is doing a good job and finances are in good shape. If you realize that a company’s stock price is rising without any relation to its actual value, it may be a good idea to sell.

On the other hand, it can be a smart move to buy stocks when their prices are low. For example, Yahoo! Inc. made a great deal in 2002 when it purchased Inktomi Corp. for just $1.65 per share at a time when the company was not profitable and Mr. Market was depressed due to overvalued shares at $231.625 per share.

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Lesson 9: There are real bargains to be found for enterprising investors.

At this point, becoming an enterprising investor may seem like a fun challenge. Does it really make sense to go to the trouble of checking your portfolio every day?

Indeed, because that’s where the best bargains can be found – but only if you start smart.

You should start your life as an enterprising investor by virtually tracking and picking stocks. To develop your ability to find a bargain and track the performance of your stocks, invest virtually for a year.

Virtual investing is offered on many websites today. All you have to do is sign up to see if you can get better results than average. The one-year trial period serves several purposes: not only does it help you become familiar with investing, but it also frees you from unrealistic expectations.

After gaining a year of virtual experience, you’ll be ready to go bargain-hunting. You will find the best bargains in undervalued shares of companies.

Companies whose shares are temporarily unpopular or that suffer economic losses are usually undervalued by the market.

Take Company B as the second strongest competitor in the refrigerator market. Over the past seven years, the company has generated solid, but not spectacular, profits. However, a production error has caused the company to be less profitable over the last two months, spooking investors and causing the share price to fall.

An intelligent investor would see this share price decline as an opportunity to pick up a great bargain once the production error is fixed.

However, bargains are hard to find. That’s why you have to practice for a year first. You can do it in the virtual world, and you can do it in real life!

Final summary

You always want to walk the path of the intelligent investor when it comes to stocks, regardless of whether you want to take the defensive route or the entrepreneurial one. By following the guidelines outlined here, you can also turn your investments into modest – but steady – profits.

The Intelligent Investor Review

The Intelligent Investor, written by Benjamin Graham, is highly regarded among the public and remains so today. The influence of Graham’s methodology cannot be denied, according to Ronald Moy, professor of economics and finance at St. John’s University. Warren Buffett, Bill Ruane, and Walter Schloss are among his disciples.

This book has been hailed by both economic scholars and everyday investors alike.

Ever since it was published, “The Intelligent Investor” has been considered the bible of the stock market. Thousands of investors follow this work diligently all over the world. Investors are protected from substantial error and taught long-term strategies through it. 

Is The Intelligent Investor a good book for beginners?

In addition to being constantly updated and revised since its original publication in 1949, The Intelligent Investor is a great book for beginners. In order to understand how the market works, it’s considered a must-have for new investors.

 The book is intended for long-term investors. You may not enjoy this book if you’re looking for something more glamorous and trendy. It offers lots of advice based on common sense instead of how to profit from day trading or other frequent trading strategies.

Is The Intelligent Investor Still Relevant Today?

The book is still relevant even though it is over 70 years old. When Graham first taught his philosophy, he advised buyers to buy with a margin of safety. 

After doing their homework (research, research, research) and identifying what a company is worth, investors should purchase it at a price that will give them a cushion if prices fall. Investors should always be prepared for volatility, according to Graham.

Although the economy has grown and changed, Graham’s investment strategies remain useful today. 

According to Kenneth D. Roose of Oberlin College, Graham’s book remains the most accessible and most comprehensive discussion of the problems that face the average investor.

Should You Read The Intelligent Investor?

If you want to build up your investment portfolio in your spare time this lockdown, this book is a must-read. Your financial goals will be easier to reach when you follow the path of an intelligent investor.

A smart investor is either an enterprising investor or a defensive investor, according to the author. The entrepreneurial investor aims to beat the market by finding and investing in highly undervalued stocks, while the defensive investor settles for matching the market by diversifying. A must-read for anyone wanting to learn more about investing.

Smart investors must be better informed than their competition if they want to beat the market. Those who attempt to beat the market average without the necessary skills and knowledge are likely to do poorly. As a result, most of us would be better off settling for the stock market’s annual average return of around 10%.

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The Intelligent Investor and Warren Buffett

According to legendary investor Warren Buffett, who Graham famously mentored, The Intelligent Investor is “the best book on investing ever written.” 

When Buffett was 19, he read the book and enrolled in Columbia Business School to study under Graham, with whom he formed a lifelong friendship. At Graham-Newman Corporation, Graham’s investment company, he worked until Graham retired.

At an auction in 2010, a copy of The Intelligent Investor signed by Warren Buffett sold for $2,900.

As each of Graham’s students developed their own strategies and philosophies, one thing they all had in common was creating a margin of safety.

Buffett follows a value investing strategy, which seeks securities with unjustifiably low prices based on their intrinsic value. He also takes into account the performance of the company, its debt, profit margins, whether it is public, whether it is dependent on commodities, and how cheap it is.

In contrast to Graham, Buffett puts a premium on a company’s quality and believes in holding stocks for the long term. Buffet does not seek capital gains. 

Buffett’s objective is to own quality companies that generate large earnings; he is not concerned that the stock market will ever recognize the value of a company. Even so, Buffett stated that Graham’s methods never resulted in losses.

About The Author

Professor, investor, and economist Benjamin Graham was a British-born American. Value investing is widely known in his writings, Security Analysis (1934) and The Intelligent Investor (1949), which are both foundational texts for neoclassical investing. 

The core tenets of his investment philosophy were investor psychology, minimal debt, buy-and-hold investing, fundamental analysis, cost-conscious investing, activist investing, and a contrarian mindset.

Upon graduating from Columbia University at the age of 20, he started his career on Wall Street, eventually founding the Graham-Newman Partnership. His former student Warren Buffett hired him as a teacher at his alma mater, and he later taught at the UCLA Anderson School of Management at the University of California, Los Angeles.

Through his studies of managerial economics and investing, he has contributed to the development of value investing within mutual funds, hedge funds, and diversified holding companies. 

Throughout Graham’s career, he had many disciples who went on to succeed in investment, including Irving Kahn and Warren Buffett. The latter described Graham as the second most influential person in his life after his own father. Graham had another famous pupil in Sir John Templeton.

The Intelligent Investor Chapters

  • Chapter 1: Investment versus Speculation: Results to Be Expected by the Intelligent Investor
  • Chapter 2: The Investor and Inflation
  • Chapter 3. A Century of Stock-Market History: The Level of Stock Prices in Early 1972
  • Chapter 4. General Portfolio Policy: The Defensive Investor
  • Chapter 5. The Defensive Investor and Common Stocks
  • Chapter 6. Portfolio Policy for the Enterprising Investor: Negative Approach
  • Chapter 7: Portfolio Policy for the Enterprising Investor: The Positive Side
  • Chapter 8: The Investor and Market Fluctuations
  • Chapter 9: Investing in Investment Funds
  • Chapter 10: The Investor and His Advisors
  • Chapter 11: Security Analysis For The Lay Investor
  • Chapter 12: Things To Consider About Per-Share Earnings
  • Chapter 13: A Comparison of Four Listed Companies
  • Chapter 14: Stock Selection For The Defensive Investor
  • Chapter 15: Stock Selections For The Enterprising Investor
  • Chapter 16: Convertible Issues and Warrants
  • Chapter 17: Four Extremely Instructive Case Histories
  • Chapter 18: A Comparison of Eight Pairs of Companies
  • Chapter 19: Shareholders and Managements: Dividend Policy
  • Chapter 20: “Margin Safety” as The Central Concept of Investment

Buy The Book: The Intelligent Investor

If you want to buy the book The Intelligent Investor, you can get it from the following links:

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