Book Review: The Intelligent Investor By Benjamin Graham – Guest Post
Who wants to read a book about investments that was written in 1949? Well, practically everyone should want to read Benjamin Graham’s classic, The Intelligent Investor. This book served as the inspiration to none other than Warren Buffett – who endorses the book as the best book on investing ever written. This best-seller clearly and succinctly spells out the personal tools and principles individuals need to utilize in order to succeed as a stock market investor.
It’s an outstanding resource, a classic that should take center stage on every investor – or would-be investor’s – book shelf. Despite being authored over sixty years ago, its contents are not in the least bit out of date. From information about investor categories to security analysis, the information is exceedingly relevant, virtually timeless.
The book’s praise is well deserved. A new edition includes chapter by chapter commentary and footnotes from the senior editor of Money magazine, Jason Zweig. The Zweig/Graham combination serves up Graham’s wise words, analyses, and cautionary stories side by side with Zweig’s take on Graham’s principles through 21st century economic market trends.
Graham began working on Wall Street in 1914, and was nearly wiped out in the stock market crash of 1929. From his own economic perils, he gained painful but invaluable lessons on both the bull and bear markets, the functioning of the stock market overall, and investor behavior. He offers up a brilliant analysis of what makes an investor intelligent – traits of character that lead intelligent, enterprising investors to succeed through extra effort and diligent research
The book is widely heralded for its information on value investing, the approach which Graham also taught at Columbia Business School. The book leads readers through clearly presented chapters on value investing and security analysis. And what is value investing? It refers to the economic belief that the stock market operates inefficiently, and to always go to the financials of a company, the source, in order to derive accurate information to generate a valuation. Value investing suggests that investors buy stocks with a lower price than their intrinsic value, and hold these stocks until they return to their intrinsic value level.
Graham presents an allegory about a fictional “Mr. Market,” who comes to your door and offers you different share prices every day, some more absurd than others. Graham posits that an intelligent investor shouldn’t rely on the whimsical changeability of Mr. Market to determine the value of his own shares. Instead, the investor should concentrate on the actual performance of the companies in which he’s invested based on sound financial metrics.
The book clearly expresses that stocks, like anything else, should fit ones needs for both price and quality. Graham reveals what one should seek out in the company that the stock investment reflects. He presents some important specifics about the companies behind the stocks a value investor should consider, such as the size of the company, its financial strength and average earnings stability over a period of years, its dividend record, earnings growth, as well as some more commonly used financial ratios.
Throughout the years, developments in the economic marketplace prove Graham’s strategic wisdom. Jason Zweig supplements the current printing of the book and gives readers a more complete understanding of current applications for Graham’s principles due Graham’s examples being based nearly 60 years ago.
Graham’s wisdom is rooted in the idea of minimizing loss rather than maximizing profit; it’s written not for cavalier speculators but for serious investors – which any “layman” can become, if he or she is willing to adhere to a long term, committed investment effort. To Graham, a true investor always succeeds because he makes good use of discipline, research, and analysis to obtain sound financial investments – investments with good value compared to their assets.
With Graham’s practices embraced by generations of financial wizards, his recipe for sound and successful investing should be considered by any serious investor.
Susan Porter is a financial writer whose interests include market analysis, stock trading, and behavioral economics. Get more tips and advice on the blog Stock Trading!