The Intelligent Investor

The Intelligent Investor is the definitive book on Value Investing. This classic work of Finance was first published only four years after the ending of World War II. Its main author Benjamin Graham is renowned as the mentor of none other than Warren Buffet and there are lessons in the Intelligent Investor that should resonate strongly with investors today.

What does “intelligent” investing look like?

• Benjamin Graham adopted a longer-term, more risk-averse approach to the stock market
• The price you pay for something may inevitably determine the future prospects
• “Mr. Market” is a force of nature and you need to understand the pitfalls

Lessons

• It is important to determine the long-term value of individual stocks
• Intelligent Investors use thorough analyses in order to secure safe and steady returns
• Intelligent Investors are able to distinguish between the practise of speculation and the art of investing
• Concept of Intrinsic Value is key
• If the current stock price is above the company’s intrinsic value, the stock is not attractive
• Intelligent investors focus on pricing and the data. They block out the noise of “Mr. Market”
• These investors buy stock only when its price is below its intrinsic value, i.e., its value as it relates to a company’s propensity for growth
• Concept of Margin of Safety is key
• Through the purchase of shares at an appropriate discount, investor margin of safety is assured

The 3 Principles of Intelligent Investing

Analyse the long-term development and business principles of the company

• Examine the company’s financial structure
• Review the quality of its senior management team
• Determine its ability to pay consistent dividends
• Study the company’s financial history

Protect your investments by diversifying your investments

Ensure that your portfolio is not overly concentrated in one specific sector, stock, asset

Patience and discipline are key attributes

• Successful investing should be slow and unglamorous
• Fast money strategies promotes negative behavior patterns including fear and greed

Why the Intelligent Investor makes our short-list?

• Benjamin Graham emphasises the importance of an appreciation of Financial History
• The unpredictability of the market means that investors need to be prepared – financially and psychologically
• The author is acutely aware of the frailties of investor psychology
• Graham’s use of “ Market” is insightful and useful in determining the market traits that investors need to be careful of
• Graham asserts that “ Market” is easily influenced, unpredictable, not very clever and prone to mood swings
• Such mood swings manifest in unsustainable optimism and unjustified pessimism

How can we use the lessons from Benjamin Graham in our own Investment strategy?

“To thine own self be true”

• Important that your investment strategy suitably matches your own personal traits
• Graham distinguishes between a “defensive” and an “enterprising” investor
• Investing is easy when you follow the formula approach
• Regular disciplined contributions invested over the life-cycle reduce the risks
• There are emotional demands associated with formula investing
• Don’t be afraid to take the Contrarian approach
• The average investor fears that going against the flow will result in financial loss
• The Intelligent Investor recognises that “Mr. Market” is prone to excessive exuberance and   fear however
• Opportunity often presents itself in such circumstance