The economist Benjamin Graham is regarded as an expert in financial markets. He is credited with developing the concept of value investing, which emphasizes buying stocks based on their intrinsic values instead of their current prices. In addition to being a pioneer of value investing, he also developed the concepts of margin of safety and security analysis. These concepts, along with Graham's emphasis on avoiding risk, helped shape modern day portfolio management strategies.
Over the past few decades, the market has developed a number of important financial trends. These include the development of new financial instruments such as derivatives and the introduction of new technologies such as automated trading systems. In addition, the introduction of new regulatory requirements has also had a major impact on the industry. For example, the Sarbanes-Oxley Act of 2002 introduced new standards for corporate governance and accounting transparency. As a result, these changes have made it difficult for investors to make informed decisions about their investments. However, despite these challenges, Graham's strategies remain largely unchanged. His focus on value investing remains an effective strategy for achieving superior returns in both good times and bad.
After graduating from Columbia Business School in 1920, Graham went to work for an investment bank in New York City. He worked there for fifteen years, during which time he gained a substantial amount of experience and developed a good understanding of how markets operate. He also learned a lot about financial history, particularly the Great Depression. Because of this knowledge, he was able to develop strategies for minimizing risks in the stock market. His approach involved buying stocks at prices much lower than they would sell for if the company were being liquidated. He also used market psychology to his advantage. For example, he knew that people feared losing money and so he tried to make them afraid of losing everything.
In Security Analysis, first we must determine whether something is a security or a speculation. A security protects the principal and provides an adequate return. Anything else is a speculation. Second, we must consider the perspective of stock ownership. In the short term, the stock market acts as a voting machine, so we can vote our shares by buying them. But in the long term, the stock market works like a weighing machine, so we get what we pay for. Therefore, in the long run the true value of the stock will be reflected in the share's price.
Grahams method focused on determining the values of the operating companies behind various stocks. Security Analysis provides several examples where the market underestimated certain out-of-fashion stocks which turned out to be important opportunities for the smartest investors. These and other ideas, including margin of safety and period of financial distress, helped to lay the groundwork of Grahams later work in The Intelligent Investors and helped to pioneer some key investing concepts.
Graham, along with Dodd, began teaching value investment as an investment approach at the Columbia Business School in 1928, where they taught until their deaths in 1956. Their ideas were later popularized by Benjamin Graham (1894–1976) in his books Security Analysis and Personal Finance.
Value investing is deriding the market price of a common stock based upon a number of factors including the company's assets, earnings and dividends paid out. These factors can be analyzed to determine if the current stock price reflects the intrinsic value of the stock. If the intrinsic value exceeds the market value, the investor should buy and hold the stock until the intrinsic value converges with the market value. In essence, the investor is buying a stock below its intrinsic value and waiting for the market to catch up.
Graham's favorite allegorical story was that of Mr. Market. This imaginary figure shows up every day at the shareholders' meeting, offering to buy or sell shares at a different price each day. Some days, the offered prices make sense, but on other days, the offered prices are off the mark. Individuals have the power to accept these offers or not, and so they have a leg up over those people who feel compelled to be fully invested all the time, no matter what the market does. Investors should focus on the real life performance of their companies and how much money they actually earn, rather than listening to the opinions of Mr. Market, because he may not know what he is talking about. No one is right or wrong if others share the opinion that they do, only if they are correct. Facts and data are the best way to determine whether someone else is correct or incorrect.
Typically, Graham only purchases stock that trades at one third of its net-net value, because he wants to establish a margin of safety. Net net value is an investment strategy used by Warren Buffett to buy shares of companies whose earnings continue to grow.
where EPS=Trailing 12-month earnings per share, g=Long-term growth rate
With V representing the market capitalization of the stock, EPS represents the trailing twelve month earnings per share, 8.5 is the P/E ratio of a company with no growth prospects, and g is the long term growth rate of the company. Later, Graham modified his formula to include both an inflation rate of 3.2% (the average annual increase in the Consumer Price Index over the previous 10 years) and a risk-free rate equal to the average yield on U.S. Treasury bills issued during the same period.
where Y=AAA corporate bond yield (in 1962)
Graham also advocated for a investing approach that provides a safety net for the investor. There are two main ways to accomplish this: Buying undervalued or out-and-out bad stocks is the most important way. Irrational investors, the inability to forecast the future, and the fluctuation of stock markets can provide a safety net for investors. Diversification and purchasing stocks in companies that pay dividends is another way to achieve a safety net for investors; these stocks offer higher yields, which means they pay investors a return before taxes are taken into account. This margin of safety mitigates the investor's losses in case a company goes bankrupt.
Many of Graham's investing principles are timeless - they remain as relevant today as when he wrote them. Graham criticized corporations' obscure and irregular methods of accounting that make it hard for investors to get a clear picture of a company's health. He later wrote a book about how to read financial reports, from balance sheets and profit and loss statements to financial ratios. He also advocated for companies paying out dividends to their shareholders instead of keeping all of their profits in retained earnings.
The Intelligent Investor is an excellent book for beginners, especially because it's been continuously updated and revised since its initial release in 1949. It's also considered a must-have resource for new investors who are just starting to learn about investing. Those who are interested in something a little more exciting and potentially trendier might find this book doesn't quite fit the bill. It provides a lot of straightforward, commonsense advice, rather than what to do if your stock picks go south.
About The Intelligent Investor: Legendary investor Warren Buffett, who Warren Buffett famously mentored, described as "by far the greatest book on investing ever written". In fact, after reading the book at age nineteen, Buffett enrolled in Columbia University's business school to study under Graham, who he had befriended during his college days. Later, he worked for Graham at his firm, the Graham-Newton Corporation, until Graham retired; he then took control of Berkshire Hathaway, a conglomerate with interests ranging from insurance to retailing.
Graham's students all ultimately developed their own strategies and viewpoints, but they all shared a common principle of creating a margin between what something was worth and what it could sell for. In general, Buffett follows a set of principles called value investing, which looks to find securities whose price is unjustifiably low based upon their intrinsic worth. Buffett further emphasizes company performance, company debt levels, profitability, whether a company is publicly traded, how reliant it is on commodities, and how inexpensive it is.
Buffett's strategy contrasts with Graham's by stressing the importance of a business' quality, and he preachers the virtue of owning stocks for the long term. Buffett does not seek capital gains. Rather, his goal lies in ownership in quality companies that can generate earnings, and Buffett is not concerned that stocks ever recognize a company's value. Still, Buffett said that no person ever lost money by following his methods.
The Intelligent Investor is often credited with being the definitive guide to value investing. According to Warren Buffett, investors should analyze a firm's financial statements and operations but disregard the market chatter. The whims of investors--their greed and fear--fuel market sentiment. In addition, investors should seek price-to-earnings disparities--when the market price of an investment is lower than its intrinsic value. Once these disparities are found, investors should buy shares. When the market price and the underlying value are equal, investors should sell. The Intelligent Investor also recommends investors to keep a portfolio of 50 percent equities and 50 percent fixed income securities, to be wary of day traders, to take advantage of fluctuations and volatility, to avoid buying a stock merely because it is trendy, and to watch for signs that management might be inflating earnings values.
Even though this book may be over seventy years old, it is not outdated. The advice to buy stocks with a margin of safety remains just as valid today as it did when Graham first taught his philosophy. Investors should conduct thorough research before buying any stock, including researching, researching, researching. Once an investor has determined what a company is worth and bought it at that price, he or she should purchase additional shares if they see the market moving down. Graham's advice that investors must always prepare themselves for volatility is also still relevant.
Although details of Graham’s specific investments aren’ t readily available, he reportedly average an approximate 20% annual rate of return over his many years handling money. His method of purchasing low risk stocks with high return potentials has made him a true pioneeer in the financial analysis space. Many other successful value investors have borrowed his methodology. While he is best known fro the books he wrote in the field of value investment—most notably The Intelligent Investment—he was also instrumental in drafting aspects of the Securities Act of 1934, legislation requiring companies to disclose financial information certified by independent accountants..
Warren Buffet's top picks for investing books include Benjamin Graham's classic Security Analysis, John Burr Williams's classic Portfolio Management, and Peter Lynch's classic One Up On Wall Street. These books are great resources for anyone interested in learning how to invest. They offer advice on everything from picking stocks to managing your portfolio. While they aren't perfect, these books are certainly worth reading if you're serious about investing.
This book is perhaps one of the most important books on investing, and an enduring classic. It is not about shortcuts to wealth; instead, it teaches three powerful lessons of what one can do to become wealthy:
The book is about investing. Investing is for the long term, short term investing is like saying you're a spendthrift miser, while long term investors buy securities for its intrinsic value and holds them, the'short-termers' play on its prices like a video game, "high on dopamine", "seeing price patterns". While the intrinsic value of a security is stable, the market, built upon the greed & fear of speculators, constantly fluctuates wildly, and it is this constant flux of price movements that is "the juice" of speculation.
OK, the recent financial crisis frightened me. I lost money in 1999 and vowed I'd never let it happen again, so this time I invested my savings in value stocks. The problem with this strategy is I didn't know if these stocks were really worth buying. So I bought a second hand copy of Benjamin Graham's book, _The Intelligent Investor_. After reading this book, I realized that investing in value stocks wasn't such a good idea after all. I also found out that some of my value stocks weren't all that great, so I decided to get rid of them. I absolutely recommend this book. Right now is a great time to invest in value stocks that have fallen a lot. These stocks fell not because they're bad companies, but because the markets have fallen and they've been pulled lower.
This book is a classic when it comes to learning about investing. The author of this work – Benjamin Graham is commonly referred to as the ‘father of value investing’. His works are considered to be among the best books by all leading investors, businessmen and critics alike. The Intelligent Investor contains real-life stories of successful investors. It begins from researching and analyzing the performance of the companies. They discuss in detail how they picked stocks based on certain factors, how much quantity should be bought, when to buy it and how long to wait before selling them. They share specific strategies and techniques based on various possible scenarios and situations. The author also shares proven methods on how investors can make profits and also avoid losses.
This was absolutely the most boring book I've every suffered through, but it is supposed to be a classic so I fought through it to the end. I would say that if you are an intermediate or beyond investor, then you probably won’t learn much. I assume that it is a classic because it focuses so much on consistency and keeping emotions in a positive way. If you are someone who just continues to invest automatically, then just keep investing and then live your life! You'll be fine. But if you want to speculate, then good luck…I'd say to read the first chapters along with 8 and 20 before moving on. No need to spend 600 pages. I guess the beauty of this book lies in its simplicity…follow a few basic investing principles, don't get caught in today's hype, and then go out and cut the lawn.
I am not sure if the commentary and footnotes added any value to my reading experience. They were certainly interesting, but they did not add much to the original content. I think the book would benefit from being updated to reflect current market conditions. For example, the examples given for investing in stocks are no longer relevant because of the recent financial crisis. In addition, the information about individual companies was also out of date. The commentary by Jason Zweg provides more up-to-the-minute advice on how to invest, so I recommend checking it out if you're interested in learning more.
I would suggest The Random Walk Guide to Investment: Ten Rules for Financial success for a simpler, more straightforward approach to this book. It is not that I would not recommend anyone to read The Intelligent investor, it is just that if you do not have the time to plodd your way through Graham's dated details, either skip directly to the commentary, or visit Malkiel's book. Either way, you will not go wrong, and you certainly will not go wrong if you wish to try and read this entire thing. It was just difficult to do so.
Great read. Definitely worth reading. The author does a great job explaining the concepts behind investing. He also gives examples and studies to support his points.
Very boring and you won't have to fight your way though every page, but it is a finance book so what would you expect? I wanted learn more about investing after reading some basics in Rich Dad Poor Dad, and this did just that, but I found the basic message for me to be play it safe and go with a good mutual fund, which made me realise how complicated, scary and confusing investing can be, and made sure that I would never have the patience or interest to do my own investments. Please read this before getting started on your investing journey, I'm sure it will help you save some money and stress in later life.
I have no financial education background and began trading without any knowledge just out of passion for the stock market. After reading this book, THE INTELLIGENT Investor, I've gained skills, techniques, and strategies to manage my investments and protect myself against loss.