As part of the book review series, today I’ll share with you my thoughts, ideas, and what The Intelligent Investor provoked at me as concepts. The book was originally published in 1949 and revised several times. The copy I read is a revision from 2006. The Intelligent Investor is well written, however, in some cases, you will feel it’s outdated.
One place I really felt that the book is outdated is with the examples themselves – most of these companies and events I’ve never heard of. A good thing here is that after every chapter, there is an additional section with a chapter commentary, which comments are as recent as 2002.
This book contains a lot of sound examples, concepts, advice, and ideas.
You wouldn’t read about Benjamin Graham shouting “time in the market is better than timing the market”. The author’s idea is that there are thousands of companies that you could invest in. However, which of these companies are worth your money today? This means that in every single moment there is a company whose shares are trading below their worth. These are the shares you should go and buy, not the ones of that hyped company that is breaking the news.
Does this remind you of at least 5 companies from the recent year? I bet it does. There are a lot of overvalued companies or such that has no prospect of future growth.
If I got the idea of The Intelligent Investor correctly, dividends are good, but the prospect of growth is even better. However, dividends are not the only factor the author is taking into account.
Benjamin Graham’s portfolio had successfully beaten the market
Yes, you heard that right. Benjamin Graham’s portfolio has beaten the market. Not with a 1-2%, but with a whopping 14%, if I recall the number correctly. How he did that? By evaluating carefully every single investment he made.
“To invest successfully over a lifetime does not require a stratospheric IQ, unusual business insights, or inside information. What’s needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework.“
Benjamin Graham
About that framework, you will be able to read in chapters 5-8, 11-12. To me, these were probably the most valuable chapters in terms of understanding how things work. Yet, this is a book that I’ll probably re-read multiple times until I get a complete understanding of everything.
The Intelligent Investor isn’t suitable for folks with no financial knowledge
There is a lot of financial terminology and concepts that would require at least a minimum knowledge in finance. Knowing how markets work and what are stocks and bonds is a good start. Being introduced to ETFs, volatility, index fund and the likes is another step in the right direction. Otherwise, you may feel like you’re wasting your time reading it.
I am also not so sound with finance, but it’s what I’m reading and breathing through 2020, so most of the things I already had as concepts in my mind. However, I’ve found myself re-reading lots of pages again and again until I grasp the idea and what the author is saying. The commentary after every chapter helped with that quite a lot. They are written very well and explain the idea behind Graham’s words.
I’ve found myself highlighting whole pages with important quotes and ideas
Since I’m reading on a Kindle, I’ve got the opportunity to easily highlight fragments of the book. I did this quite a lot – in some cases, I highlighted whole pages. There are concepts that I never heard before, examples that were so good that I just couldn’t miss saving for later.
Graham shares lots of investing principles that make so much sense when you really get into the idea deeply. I’ve tried to capture them to some extent so that I could get back to that point and re-read it again.
The Intelligent Investor will teach you why certain investing strategies don’t work
I bet you all heard about certain investment strategies that work very well at certain market levels, months through the year, or other special conditions. Benjamin Graham does a very good job explaining why these strategies are a pure hoax. It’s not only the explanation itself, but he also cites studies and research on the topic.
The idea here is that if a certain group of people is exploiting a certain strategy, at some point more people will think about the same and exploit it as well. This will make the market to adjust in a way that it will compensate for the actions of these investors.
When that happens, these strategies will no longer work. Since the market is being around for more than a decade or two, lots of strategies have been tried, but also there are far more people investing nowadays. This makes it impossible for strategies that are not based on sound principles and framework to actually work.
In the Appendixes, you will find an article written by Warren Buffett
It’s the first from the Appendixes after the postscript and probably this was my favorite part of the whole book. Not because it was written by Warren Buffett, but because it shares about some of the people Benjamin Graham actually thought how to invest. Buffett shares some really good ideas as well – to him, investing in value is the key. According to Buffett, it’s bizarre that value investing isn’t thought in schools anymore, while it can bring so much more to the table.
All of Benjamin Graham’s students did very well with their investing endeavors. Some of the folks didn’t have any financial background, they just took Graham’s course and that was it. The rest is history.
My personal rating for The Intelligent Investor is 4.5 out of 5.
I’m not saying this book will make me go back to value investing as a strategy. I would say though that this book gave me an interesting perspective and enriched my knowledge about the financial markets. It gave me a new perspective of what I should be looking for whenever I research a stock and make an investment decision.
This book wouldn’t make a Warren Buffett out of you, but it will definitely give you the fundamental ideas and concepts about investing that can help you grow.
The Intelligent Investor is available on Amazon.
