The Intelligent Investor a book review

If you were to ask any serious investor about what books they recommend, there is a high probability this is one of the first they mention.
Legendary investor Warren Buffett even called it “the best book on investing ever written.”

The book covers:

  • How to construct a portfolio and pick stocks, as either a defensive or aggressive investor.
  • Stock and bond analysis.
  • How to value a business.
  • The margin of safety.
  • A different view of stock market fluctuations.

The classic text on value investing

The author, Benjamin Graham, often referred to as the father of value investing was the first to teach the strategy along with his colleague David Dodd at the Colombia Business School in 1928.

He later wrote Security Analysis, The Interpretation of Financial Statements, and The Intelligent Investor, all highly regarded.

Main ideas of the book

Investing vs. Speculation

If you speculate you will (most probably) lose your money in the end.

In the book, Graham uses the word investing as something meaning the opposite of speculating. Time and time again through the book, he draws attention to the fact that the two must be separated.

He describes investing as:
“An investment operation is one which, upon thorough analysis, promises safety of principal and a satisfactory return. Operations not meeting these requirements are speculative.”

Are you an aggressive or defensive investor?

Graham says there are two types of investors: the aggressive or enterprising and the defensive.

Defensive investors are those who either don’t want to or don’t have the time to learn about investing and find the most attractive issues.
Their main objective is to avoid various mistakes and unnecessary losses.

The aggressive investors are willing to spend a lot of time and effort learning about investing and selecting sound and attractive investments. In exchange for their effort, they expect a return better than the average.

Valuing a business and the margin of safety

You will learn how to value a business and to buy with a margin of safety. If you know what something is worth, you also know at what price it is cheap. 

When you buy something for less than it is worth, there is a margin of safety present. The margin of safety leaves room for error in your judgment and unfortunate future events.

Meet your partner, Mr. Market

Mr. Market is an allegory meant to represent the irrational behavior of the stock market.

Mr. Market will frequently offer to buy your shares or sell you his. The problem is that he’s manic-depressive. He goes from wildly optimistic to very pessimistic and his offers reflect his mood.
The thing is, you don’t have to buy from or sell to him unless you can take advantage of his offers. You can buy when he’s depressed and sell when he’s euphoric.

An essential investment book

It is a total game-changer. You won’t look at investing the same way after reading it.
Although 72 years old, the ideas and strategies presented have stood the test of time and will continue to do so for a very long time.
Getting this book is probably one of the best things you can do for your investment performance.
Personally, it’s one of my all-time favorite investment books. I have probably read it two times just this last year.