The Intelligent Investor Book Summary by Benjamin Graham

how the Intelligent Investor Book help us?

The Intelligent Investor book offers good advice on investing from a reliable source, Benjamin Graham.

an investor who succeeded after the financial crisis of 1929. Learning from his own mistakes, this author lays out exactly what you need to do to become a successful investor in any environment.

In the book The Intelligent Investor: Fundamentals of Investing Based on Intrinsic Value by Benjamin Graham, you will learn that buying and selling stocks is not only based on luck, but also requires patience and a good knowledge of the market.

In fact, you don’t need a lot of analysis and playing with heavy numbers, you just need to know the principles based on which you can get the highest profit from your stocks. Investing in the stock market can make a good financial life for you, but only if you know how to invest.

What is the benefit of The Intelligent Investor Book to me?

Learn how to invest like Warren Buffett Have you ever thought about investing in the stock market?

Many of us have seriously thought about it.

However, most of us are reluctant to act because of the financial crises, bursting bubbles and economic crises we have seen. But there is a way to invest in this market where you don’t have to risk all your assets, smart investment.

The topic of intelligent investment, which was first proposed by Benjamin Graham in 1949, adopts a more long-term and risk-averse approach to the stock market, and it gives results. Decades after the publication of The Intelligent Investor.

many have used Graham’s method and become rich, perhaps the most famous being Warren Buffett. These tips, based on Graham’s original advice, as well as comments from journalist Jason Zweig, show that you too can become a smart investor. In these points you will understand that:

Margin of Safety

Smart investors don’t rush, they spend some time investigating the long-term value of the company

Investing can be very profitable. Of course, it can be harmful. The history of finance is full of stories of investors like Warren Buffett, who made huge sums of money by investing in the right companies.

There are just as many (perhaps more) stories about misfortunes where people make the wrong choice and lose everything.

So we have to ask ourselves if the investment is really worth the risk?

The answer is yes, it can be worth it, but only if you follow a smart investment strategy.

Smart investors use comprehensive analysis to ensure security and stability of profits. This is very different from hoarding, where investors focus on short-term gains that result from market fluctuations.

So hoarding is very risky because no one can predict the future.

For example, a rumor may reach the attention of the buyer that Apple will soon introduce a new successful product, and therefore he will be motivated to buy all the shares of Apple. If he is lucky, this information will pay off and he will make money. If he is unlucky and the rumor is false, Kelly will lose.

Instead, smart investors focus on pricing.

These investors buy stocks only when the price is lower than its intrinsic value, i.e. the value of the company in terms of potential growth.

As a smart investor, you should only buy stocks when you believe that there will be a possible margin between the amount you paid and your income from the growth of the company.

The Importance of Research and Analysis

First, before buying stocks, investors analyze the long-term growth and working principles of the company they intend to invest in.

The long-term value of stocks is not irregular. Rather, it directly depends on the performance of his company.

So be sure to check the financial structure of the company, the quality of management and the possibility of providing dividends (that is, distributing profits to investors).

Don’t get caught in the trap of focusing on short-term earnings.

Instead, get a more comprehensive view by examining the company’s financial history. With these steps, you can better understand the performance of the company regardless of its value in the market.

For example, a company that is currently unpopular (has a low stock price), but has a promising track record (ie its profitability has been stable) is probably undervalued and therefore a smart investment.

Building a Diversified Portfolio

Second, smart investors protect themselves by diversifying their portfolios.

Never invest all your money in one stock, no matter how promising it is! Imagine how miserable it would be if the news broke about the tax fraud scandal of the promising company in which you invested all your money.

Your investment will quickly lose its value and all that money and time will be wasted forever.

By diversifying, you don’t lose everything at once. Finally, smart investors understand that they are not going to make extraordinary profits, but rather secure and stable income. The goal of the smart investor is to satisfy his personal needs, not to outdo the professional stockbrokers on Wall Street. We cannot be more profitable than those whose job is to buy and sell stocks, and we should not look for quick income; Searching for money only makes you greedy.

Intelligent Investor understand the importance of stock market history

The first step before investing is not to check the background of a stock. This is certainly important, but more important is to take a look at your stock market history.

A look at history shows that the stock market has always had regular ups and downs. Usually, these fluctuations cannot be predicted. Unpredictability of the market means that investors must be financially and psychologically prepared.

Economic crises, such as the Wall Street crash in 1929, are a fact of life and occur from time to time. So you have to make sure you last when you get hit big.

This means you should have a diverse list of stocks so that all your investments don’t get hit at once. In addition, you must be mentally and psychologically prepared for the crisis.

Do not sell anything at the first sign of danger. But remember that even after the most devastating crises, the market will always recover.

Although you cannot predict every crisis, you can better understand its stability by looking at the history of the market. Once you are sure that the market is stable, focus on the background of the company you intend to invest in.

For example, check the correlation of the stock price and the company’s earnings and dividends in the last ten years. Factor in the rate of inflation (i.e., the overall increase in prices) to figure out how much you’re really making, with all interpretations.

For example, you calculate that within one year, your investment profit will be 7%, but if the inflation rate is 4%, you will only get 3% profit. Think carefully, is only three percent profit worth so much? In smart trading, background knowledge is a powerful weapon, so always keep it sharp.

Mr. Market and Market Fluctuations

Do not trust people or the market

To understand the fluctuations of the market, sometimes it is easier to assume the whole stock market as a person and call him Mr. Market. Like other humans, Mr. Market is unpredictable, very capricious and not very intelligent.

Mr. Market is easily influenced and it causes his mood to be extremely variable.

A practical example is that the market always swings between unsustainable optimism and unwarranted pessimism.

For example, when a new iPhone is launched, people lose themselves in excitement.

Mr. Market is no different and we see the reflection of this in the stock market when something exciting is going to happen, the price goes up and people are willing to pay more.

As a result, when the market is overly optimistic about future growth, stock prices become too high. On the other hand, sometimes the market is very pessimistic and warns you to sell in uncertain conditions. A smart investor should be realistic and not follow the crowd.

Also, he should not pay attention to the change of mood of Mr. Market.

Also, when Mr. Market is happy, he shows you future profits that are not real.

A stock’s current profitability does not necessarily mean that it will always be profitable. It is quite the opposite. Stocks that have done well have a higher chance of falling in value in the near future, as demand usually pushes the price to the breaking point.

Even knowing this point, short-term profits may easily tempt you.

We have evolved to easily recognize patterns, especially patterns that bode well for the future. In fact, people are so good at recognizing patterns that when psychologists show them random sequences and even tell them they have no patterns, they still look for patterns.

Likewise, when we see profits go higher and higher, we trick ourselves into seeing a pattern that we believe will continue. By now you should understand the basic principles of smart investing.

A portfolio of defensive investment stocks should be balanced, safe and manageable

When we step on the path of investment, you should choose a solution that suits you personally. You need to determine whether you are a defensive investor or an innovative investor.

The Defensive Investor in Intelligent Investor Book

Now we turn to the defense investor:

The defensive investor hates risk; Therefore, his main focus is on safety.

This safety is possible only when he diversifies his investments. First, you should invest in high-grade securities such as AAA government bonds, as well as common stocks, where by owning shares in the company, you have the power to vote on important business decisions.

Ideally, you should split your capital 50-50 between the two; Or if you are an extremely risk-averse investor, 75% in bonds and 25% in stocks is acceptable.

The degree of safety and profitability of bonds and stocks is different: bonds are much safer, but generate less profit.

Stocks are less secure but may be more rewarding.

This type of diversification considers both trends.

Second, your common stock portfolio should be similarly diverse. Invest in large, well-known companies with a long track record of success, and invest in at least 10 different companies to reduce risk.

Maybe this diversification is more laborious than we first promised, but don’t worry.

To make things easier, you use the simplicity of selection. In choosing common stocks, it is better not to innovate too much.

Look at the list of established mutual funds and simply match your list with them.

We don’t mean that you should follow everyone else and buy trendy stocks. Rather, look for investment funds with a long track record of success and emulate them.

Finally, always use the services of experts. They know the game better than you and can guide you to make the best investment decisions. If you follow these simple principles, sooner or later you will see your ingenuity rewarded with good results.

Investing is easy if you follow the formula

After choosing the companies you want to invest in, it’s time to congratulate yourself.

Most of your work is now done! Now you just need to specify how much you want to deposit regularly and check your stocks from time to time.

At this time, we use a process called formula investing, where you follow a pre-defined formula that determines how much and how often you should invest.

This method is also called cost-dollar averaging, where you invest in common stocks every month or every three months, and your investment amount is always the same.

After finding a stock that you think is safe and sound, you should put your investment on automatic mode. First, promise yourself that you will invest a certain amount (like $50) every few months.

Then buy as many shares as you can with $50. The advantage is that now you don’t need to do extra work. You will never have to over invest and you will definitely not gamble.

But the disadvantage is the emotional burden of formula investment.

Even if the price of the stock you want is really fair and you want to buy more, you have already limited yourself to a certain amount. However, defensive investors should check back from time to time to make sure their investment portfolio is still in good shape.

A good rule of thumb is to change the division of your list between stocks and bonds every six months. Ask yourself: Is my stock still profitable?

Is the ratio roughly the same as the ratio I invested in at the beginning (say 50-50?) Finally, see a professional once a year to consult with him about adjusting your funds. Now you know all the necessary tips to start defensive investing.

Enterprising Investor The Intelligent Investor Book

To become a successful Enterprising investor, you must implement many of the strategies of defensive investors.

Like a defensive investor, you should divide your money between bonds and common stocks. While a defensive investor usually divides his money 50-50 between stocks and bonds, an Enterprising investor invests more in common stocks because they are more profitable (but has a higher risk).

Like a defensive investor, Enterprising investors should consult with a financial partner.

Of course, the Enterprising investor does not consider the person responsible for his financial planning as his teacher, but rather as a partner in managing his money.

This means that this official does not assign tasks to him; They make decisions together. In addition to using bonds and common stocks as the basis of an Enterprising investor.

Enterprising investors also experiment with other stocks that have higher risk and higher reward.

For example, maybe you read about a growing startup and think that Google be next; In other words, it is a great opportunity. As an innovative investor, you have the opportunity to take a risk on this company, but only with limited money.

No matter how exciting or promising the investment opportunity seems, Enterprising investors should limit these stocks to a maximum of 10% of the overall list. Remember: Smart investors are not infallible and sometimes Mr. market is so strange that no rational person has the power to predict.

So we need to set limits to protect our money in case of economic downturn or wrong investment. Like defensive investors, Enterprising investors remember that constant research and monitoring of their listings is essential to maintaining the flow of profits.

The smart and Enterprising investor does not follow market fluctuations

If you own a stock and its price drops, do you sell it immediately or hold it?

If another stock is rising, is it better to get in before it’s too late?

This approach, called buying and selling in the market, is common among investors because they fear that swimming against the tide will cost them money.

But the smart investor is wiser than these words! Trusting Mr. Market is dangerous. If the stock price is growing rapidly, it is probably already worth more than its intrinsic value or is considered a risky investment.

Do you remember the housing bubble in America a few years ago?

Everyone invested in housing and as the price went up, no one understood that these prices were completely disproportionate to their intrinsic value. Of course, when this became too obvious, the whole market crashed. To avoid this scenario, innovative investors buy at low prices and sell at high prices.

Regularly monitor your list and check the companies under your investment.

Ask yourself these questions: Is management still performing well?

How is the financial situation? As soon as you realize that one of the companies on your list is overpriced and its share price increase is out of proportion to its real value, it is better to sell before the fall.

On the other hand, it is better to buy stocks at low prices. This is exactly what Yahoo! did In 2002, this company bought Inktomi for only $1.65 per share.

This was an amazing deal. Mr. market had collapsed after a dramatic price drop from $231,625 per share (which was grossly overvalued). This was at a time when the company was not profitable.

The Intelligent Investor has a chance to find good deals

By now, the idea of becoming an innovative investor must seem like an enjoyable challenge.

But is it really worth it to go through the trouble of regularly monitoring your list?

Actually yes it’s worth it because the best deals are out there, but only if you start smart. The best way to start investing innovatively is to pick and control stocks virtually.

Invest a year virtually to increase your ability to pick profitable options and monitor your stock’s progress. Today there are many websites where you can make virtual investments.

Only by signing up can you see if you can really achieve results that are better than average. This one-year training course has several benefits. It not only teaches you the ins and outs of investing, but also relieves you of your amazing expectations.

After this year’s virtual experience, you are ready to hunt for deals. The best way to find profitable trades is in stocks of companies that are undervalued.

The market usually undervalues the stocks of companies that are temporarily unpopular or suffering economic losses. To illustrate this point, assume that Organization B is the second strongest competitor in the refrigerator market.

This company is big and has made a lot of profit (but not super) in the last seven years. But due to the production error, the company’s profitability has not been the same in the last two months, and it has caused the stock price to fall due to the fear of timid investors.

Once that production error is resolved, the company quickly bounces back and the smart investor realizes that these falling prices are an opportunity to find a great deal. But good deals are hard to find. That’s why you have to train for a year first. If you succeed in the virtual world, you will succeed in the real world!