The Intelligent Investor, Rev. Ed – Benjamin Graham
A classic guide on investing.
The Characteristics of The Intelligent Investor
- Keen to learning new things
- Able to keep emotions in check
- Able to think for themselves (critical thinking skills)
Subscribe to Miniwise Newsletter (Free!)
Miniwise newsletter brings you one great bite-sized idea every day, curated from world's best non-fiction books, articles, podcasts..and more. An entire new world in just 5 minutes!
What Consists Intelligent Investing
Intelligent investing requires a thorough analysis of the company’s (that you’ll be investing in) fundamentals
Includes the competency to protect himself from or against severe losses
An intelligent investor must not anticipate extraordinary results therefore keeping expectations low but still aim for an adequate performance
People who invest make money for themselves; people who speculate make money for their brokers.
The Intelligent Investor vs The Spectator
The investor believes that the market price is judged based on the established standards of value while the spectator bases all their judgment on market price.
To distinguish whether you are an intelligent investor or a speculator ask yourself whether or not you would invest in a stock without seeing its chart.
In addition to that, the intelligent investor is not looking for quick gains but rather something long-term and sustainable regardless of the market’s volatility.
The stock investor is neither right or wrong because others agreed or disagreed with him; he is right because his facts and analysis are right.
The Rule of Opposite
The more enthusiastic investors and speculators become in the long run (of investing), the more certain they are to be proved wrong in the short run because the future of the market is unpredictable.
To be an intelligent investor means being humble, and composed, and should be able to expect the unexpected.
Types of Investors
- The active / enterprising investor; and
- The passive / defensive investor
The former requires continuous research of stocks, bonds, and mutual funds and this type of investor exerts much time and energy, while the latter has a fixed portfolio that runs autonomously regardless of the situation.
If you plan to become an investor, pick the type that best suits your personality to ensure the longevity of the approach.
Once you have your capital, invest 50% of it into bonds or an index fund (depending on market conditions), while the other 50% should be invested in individual stocks.
When investing in individual stocks, do make sure of these points:
- Avoid small-cap stocks unless they’re diversified
- Current assets should at least double current liabilities
- Stock earnings show stability over the previous 10 years
- Look for companies that have a history of paying dividends
- PE (price earnings) ratio must be no more than 15 over the previous 3 years; and
- If their book ratio is less than 22.5, it’s reasonably priced
For the Enterprising Investor
Before investing your capital:
- Make sure that their current ratio is below 1.5
- Debt must be no more than 110% of working capital
- Current earnings per share must be greater than their earnings per share (eps) from 5 years ago
- They must pay a current dividend regardless of the amount
- Their price to book must be less than 1.2; and
- The pe (price earnings) ration must be less than 10
Margin of Safety
Margin of Safety
This is a principle of investing wherein an investor purchases securities only when their market price is significantly below their intrinsic value.
The formula to determine the intrinsic value of something is:
Margin of Safety = Market Cap / Deep Value Bargain Investing
Remember, the market swings wildly from day to day and presents large changes in valuation over periods of euphoria and pessimism.