+Nate Chai answers the question should you read Benjamin Graham’s The Intelligent Investor?
As part of this journey, I’m not limiting myself to property investment. So this week I read The Intelligent Investor by Benjamin Graham. Warren Buffett has said on numerous occasions that this is the best book on investing and whilst I’m in no position to disagree, I’m also in no position to agree with him either.
Make sure you’re ready for it
This book is packed full of wall street jargon and goes into explicit detail about stock prices, bond prices, “convertibles” etc. If you know nothing about those things then you’re in for a rough ride. I knew very little about these concepts when I first opened the book and found the beginning nigh impenetrable.
In order to get the most out of the book, you’re either going to have to read it with a search engine to hand (I recommend Investopedia), or already have a good understanding of how the financial sector (with a focus on the stock market) operates. If you have neither of these things then it’s easy to get lost in the details that Graham goes into.
You’ll still get something out of it
Despite not understanding half of the book, the other half seemed excellent. The parts where Graham explains things is clear and easily understandable for someone with as little knowledge as me to understand. For example, Graham clearly defines the differences between an Investor (someone who buys stocks and shares for the long haul) and a Speculator (someone who’s looking to make money sharpish and can manage a far higher amount of risk).
Similarly, Graham explains how Wall Street (and many other financial institutions) operates, which allows you to understand what makes a stock “good” or “bad”.
Personally, I found the book difficult to get through but in my quest to understand what’s going on I’ve learned a lot about the stock market and how it operates.
Verdict: Not for beginners, but if you put in the effort you’ll get a lot more out of it
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FAQs
In The Intelligent Investor, Graham explains the importance of determining value when investing. In order to invest for value successfully and avoid participating in short-term market booms and busts, determining the value of companies is essential. To determine value, investors use fundamental analysis.
Can a layman read The Intelligent Investor? ›
The hallmark of Graham's philosophy is not profit maximization but loss minimization. In this respect, The Intelligent Investor is a book for true investors, not speculators or day traders. He provides, "in a form suitable for the laymen, guidance in adoption and execution of an investment policy" (1).
What is the main point of The Intelligent Investor? ›
A startup can use the principles of 'The Intelligent Investor' to generate sustainable returns by focusing on long-term value rather than short-term gains. This involves careful analysis of the company's fundamentals, such as its earnings, assets, and liabilities, to determine its intrinsic value.
How to understand The Intelligent Investor book? ›
5 important lessons from the book The Intelligent Investor
- Understand the value of the business you are investing in. ...
- Make investments objectively. ...
- Prioritise research over impulses. ...
- Steer clear of the herd. ...
- The past matters — but not too much.
Most readers will recognize The Intelligent Investor as the book Warren Buffett recommends to value investors. It was written by Buffett's mentor, Benjamin Graham, in 1949. It also remains one of the most acclaimed investing books to this day, teaching investors how to construct a portfolio while minimizing risk.
Does Warren Buffett recommend The Intelligent Investor? ›
The book Warren Buffett has recommended the most is "The Intelligent Investor" by Ben Graham. Here are 10 timeless principles from the book that you can use to invest better: This is a dense book of over 500 pages, but a lot of the principles are timeless. As they say, great books have the best ROIC.
What is an intelligent investor in simple words? ›
The Intelligent Investor, written by Benjamin Graham in 1949, is possibly the most important and influential value investing book ever written. A bible for all investors, it made the concept of investing simple and easy to understand, so that even an ordinary individual could become an “intelligent investor”.
What are the rules of intelligent investor? ›
Warren Buffett's 3 Simple Rules from “The Intelligent Investor” By Ben Graham
- Valuing a stock as part of a business.
- Reacting to stock market fluctuations with a margin of safety.
- Investing in businesses with enduring competitive advantages run by honest and able people at a sensible price.
Here are six key tenets of Graham's investing approach.
- Know yourself and invest accordingly. Graham offered different strategies for different types of investors. ...
- Invest, don't speculate. ...
- Focus on quality and value. ...
- Invest with a margin of safety. ...
- Use volatility to your advantage. ...
- Diversify to protect against losses.
These observations remain relevant today. Graham's investment performance was approximately a ~20% annualized return over 1936 to 1956. The overall market performance for the same time period was 12.2% annually on average.
This book is an excellent book for anyone investing in the stock market.
What should I read before reading The Intelligent Investor? ›
Before reading chapters I think it will be better if you read first article on appendixes, a wonderful lecture done by Mr. Warren buffet. By reading it, you will feel some trust on investment method called value investing. After that I recommend you to read each commentary by Mr. .
What were Graham's two rules of investing? ›
Graham's most recognized rules of investing are to protect yourself from losses and distrust market prices. Loss protection measures include investing with a margin of safety and diversifying across and within asset classes. Graham's margin of safety concept is closely related to his distrust of market prices.
What are the investment ideas of Benjamin Graham? ›
Graham was a believer in using a low price-to-book-value (P/B) ratio to select stocks and normally requires a ratio below 1.5 for the defensive investor. However, he also felt that a low price-earnings ratio could justify a higher price-to-book ratio.
What is Graham's definition of investment? ›
In Security Analysis, he proposed a clear definition of investment that was distinguished from what he deemed speculation. It read, "An investment operation is one which, upon thorough analysis, promises safety of principal and a satisfactory return. Operations not meeting these requirements are speculative."
What important finance and investing concepts does Graham teach in his books? ›
The most famous of Benjamin Graham books are Security Analysis and The Intelligent Investor. These books taught concepts about value investing and eliminating emotions while choosing investment vehicles.
