Finding books that contain actual helpful investing principles is about as hard as climbing the Eiger without any preparation. That’s why Benjamin Graham’s 1949 book, The Intelligent Investor: The Definitive Book on Value Investing, is such a unique and crucial book for any investor.

Graham sets out a true roadmap to investment success which anyone can draw from, whether you’re just starting out or you’ve been investing for years. The information in Graham’s must-read book has revolutionized value investing, and how investors approach the market in general. It serves as a a warning signal for anyone looking to get rich fast. Instead, Graham focuses on being in the investing game for the long haul as the true path to success.

About the Author

Graham is widely renowned and respected as the father of value investing. He invested with a careful, almost surgical, approach and helped educate the world on investment strategy planning. His security analysis technique has empowered generations of investors and helped them to find a balance between return and risk when it comes to financial securities.

Warren Buffett is probably the most well-known and respected investor of modern times, holding guru-like status for many investors who look up to him. But who mentored the guru?

Buffett lauds The Intelligent Investor as “by far the best book on investing ever written.” After reading it at age 19, Buffett enrolled in Columbia Business School to study under Graham, and later went to work for him at his investment company, the Graham-Newman Corporation. Graham was the teacher of teachers, and through his book, he continues to teach seventy years on.

Whether Graham’s students went on to develop their investing philosophies and strategies, they all shared his key principle of creating a margin of safety.

Key Insights

1. There are no shortcuts

Graham emphasizes that there's no easy way to get rich quickly in any industry, especially not in the financial markets. The concept of earning above-average returns (anything over 10% historically) might sound appealing, and perhaps achievable. However, the reality is that a large number of intelligent people try and fail. The same goes for investment funds. Even teams of professionals often cannot produce the same returns as the stock market.

2. Technical analysis is useless

Intraday traders popularized this technique, but when looking at the success rates of this group alone, nearly 90% fail to make it long-term. Despite its popularity, this technique has been proven to be erroneous over extended timeframes because it relies on trading activity and trends. Generally, the extent of an investor's focus is price and volume.

Graham said didn't know anyone in 50 years who got rich using technical analysis to calculate their enter and exit position.

3. Focus on a company's actual performance and ignore shifting market sentiment

Graham’s approach was to find the discrepancy between a stock’s purported value (market price) and its intrinsic value (justified by the company's fundamentals).

He preferred to focus on undervalued assets, abiding by the practice: “To buy when the commodity is depressed and sell when it is on a high.” This is commonly referred to as the popular saying “buy low, sell high.” Graham worked to pick investments with an almost certain yield level and a worthwhile return over the inflation rate, thus sticking to his hallmark advice of purchasing with a margin of safety.

When looking for stocks to invest in, by all means analyze market quotes, but it's also crucial to explore data like company performance, company debt, profit margins, whether companies are public, how reliant they are on commodities, and how cheap they are, as well as other considerations.

As Graham would say, “Never buy a stock without reading the footnotes to the financial statements in the annual report.” Buffett is an example of one of Graham's pupils who took this systematic approach to heart and found great success with it. It's a much more deliberate and compelling analysis.

4. Don't make impulse purchases or be influenced by the crowd

Graham preached a somewhat stoic approach to investing: Investors should neither be upset nor overly excited by the rise and fall of their stock. Adhere to the motto: “Never buy a stock immediately after it has risen significantly and never sell immediately after it has fallen significantly.” 

Similar to Graham’s third rule, always remember to avoid groupthink. This is the recurring bane he combats in his writing because it can lead to dire consequences for investors when they simply follow the pack.

5. Learn from your mistakes and stay persistent

A simple, down-to-earth rule that has an astronomical impact. Following the stock market crash in 1929, Graham learned about risk the hard way when he lost everything almost overnight. But he did not give up. Instead, he studied hard, stayed persistent, and through it all, became one of the most influential investors.

Conclusion

Seventy years on, the wisdom espoused within the pages of The Intelligent Investor still holds today. The core of Graham's advice rings true for modern-day investors: There are no shortcuts; research stocks exhaustively; purchase at a price with a cushion (or margin of safety) should it plunge; avoid groupthink like the plague; stay persistent. These principles have guided countless investors over the years and continue to do so.

“The intelligent investor must never forecast the future exclusively by extrapolating the past.” – Benjamin Graham

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