The Intelligent Investor by Benjamin Graham Book Summary

 

The Intelligent Investor by Benjamin Graham Book Summary 

 The Intelligent Investor is bestseller book by writer Benjamin Graham. Written in 1949, this book reveals the secret to become successful investor in stock market. This book teaches long term, more risk averse approach to stock market investment.

The Intelligent Investor book is by far over decades has been the bestseller book on stock market investment. Benjamin Graham was a successful investor himself and he is even the teacher of Billionaire Investor Warren Buffet. By following his investing principles Warren Buffet became one of the richest people in the world.

The followings are the key lessons from The Intelligent Investor Book Summary.

Intelligent Investors don’t take decisions in hurry, They examine the company’ long term value first.

Intelligent Investors like Warren Buffet make billions by doing investing but there are others who lose lot of money too. Intelligent Investors never take investment decisions in hurry.

They take decisions rationally. They first examine the company and its operations properly. Intelligent Investors do thorough analysis of company and its details before investing.

There is difference between investing and speculating. Investing happens on the basis of company performance and fundamentals whereas speculating happens on basis of rumors.

Intelligent Investors always focus on pricing of stocks. They invest in stocks of company only when they are traded at fair value or either less than or nearby their intrinsic value.

Intelligent Investors follow three principles.

Firstly, Intelligent Investors do not take into consideration short term gains or losses of the company. Before investing into any company stocks Intelligent Investors analyze expected long term growth in the company and its business principles.

Secondly, Intelligent Investors never invest there all money in any one company stocks at a time. No matter how much the company stock valuation may be promising Intelligent Investors diversify their investments in different company stocks to protect themselves from big losses. They take calculated risks.

Thirdly, Intelligent Investors never expect too much extraordinary returns from any one stock. They know that keeping extraordinary expectation make them greedy and they eventually can make losses if markets turn around.

Intelligent Investors always remember History Has Shown That Stock Markets Are Uncertain.

Intelligent Investors always keep in mind that stock markets are volatile and always ups and downs happen in stock market. For becoming successful in stock market investment, you should be mentally and psychologically prepared to take risk. You should not get panic when there is loss in stock market.

Economic crisis like 1929 Wall Street Crash happen in stock market and it’s the harsh truth. In fact, crises are the most suitable time to invest further and take more profits home later.

Don’t Trust Mr. Market.

The writer says imagine stock market as human being called Mr. Market. Mr. Market is unpredictable and he is not very clever. Mr. Market has mood swing problem and because of that market moves ups and downs. He easily gets influenced by people’ behavior and you should use your judgment before taking any actions on the move of Mr. Market as those are not rational all the time.

The basic principle here is, trust your learning and not mood of Mr. Market who can react in any unexpected way based on mood swing and crowd behavior.

Defensive Investor Have Well Balanced, Safe and Easy To Manage Portfolio.

Before investing you should know what strategy of investment you are working on. You should know that you are using Defensive Strategy or Enterprise Strategy. We will focus on Defensive Strategy here.

Defensive investors are risk averse investors. Their main concern is safety of their capital. Diversification of investments is key here.

You should invest money in both high grade bonds like AAA government securities as well as common stocks. Bonds are more secure but produce less return while stocks are less secure and produce more returns. Among stocks you should invest in big well-known companies with long history of success.

For an idea you can see portfolio of big investment funds to see  where they have invested money. It is wise idea to hire service of an expert if you do not understand the stock selection process.

For Making Investing Easy, Always Follow Formula.

After you chose which company stocks you want to invest your money in, most of your work is done. Now you should follow process called Formula Investing. It is also called Dollar Cost Averaging where you invest same amount every month or quarter in same stocks.

The advantage here is that you just do not have to make more efforts and have to invest same amount in same stocks every month.

The disadvantage here is that even if your stocks are available in bargaining prices then also you have restricted yourself with fixed amount of investment condition.

If you want then you should seek out professional advice to consult about adjusting your funds once in year.

Enterprise Investors Also Start Similar To Defensive Investors.

Enterprise Investors also use many investment strategies like Defensive Investor. Just like Defensive Investors, Enterprise Investors divide funds between bonds and stocks.

Defensive Investors will probably have 50-50 split between bonds and stocks whereas Enterprise Investors will have more amount invested in stocks. Enterprise Investors take more risk as they want to deliver higher returns.

Enterprise Investors will also take help of financial planners. But they will not consider them as teacher like Defensive Investors but will work with them as partner to manage their money.

Enterprise Investors will also experiment with other kinds of  stocks with higher risks and higher returns. Enterprise Investors will always limit their investments to maximum of 10 percent of their portfolio in any stock even if they seem very promising.

Enterprise Investors Don’t Follow Market Up-Down.

Enterprise Investors don’t do trading like other investors do. They just don’t sell stocks when price falls without any solid reasons. Enterprise Investors buy in low markets and sell in high markets.

Enterprise Investors do extensive research before buying any socks. They keep on having watch on the stocks and market up down moves does not make difference for them. Until any major fundamental changes happen in company or any long term projection view changes, Enterprise Investors do not change their investment.

Enterprise Investors Can Find Stocks With Real Bargain.

Enterprise Investors regularly keep on tracking the stocks for long time even before buying them. That helps them to pick the right stocks at right bargain price. The bargain hunting is the thing which helps the Enterprise Investors to earn more return than Defensive Investors.

Even after buying the stocks Enterprise Investors keeps records of the price fluctuations of the stocks and keep adding their portfolio upon finding more bargain price. Intelligent Investors always see falling prices as opportunity to invest more money in stocks and earn more returns from investments.

The key message given in this book: 

In this book The Intelligent Investor writer Benjamin Graham put forward that, the key to turning out to be Intelligent Investor is to follow the guidelines of investments given in this book. No matter you are Defensive Investor or Enterprise Investor when it comes to picking stocks for investments, you have to follow the rules to earn decent and modest return on investment. The growth of investment does happen steadily after doing careful investment and not on speculation. Following these rules you can easily become Intelligent Investor and build wealth for you.

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