The Intelligent Investor — Chapter 1 Key Points (Summary)
My goal over the next few months is to write a blog style summary coming out of the book The Intelligent Investor by Benjamin Graham.
This first post is going to cover an introduction to the goals and rationale for creating this content and then will lead into a review of the Intro and Chapter One of the text itself.
I recently stumbled upon this book and had started it out solely for the purpose of diving deeper into the insights of “How to create the best out of the best portfolio” as one of the Big Bulls.
A brief summary of the introduction has been defined as the “most important and the first basic secret mantra of being actually rich and become one of the Big Bulls” , and then to re-iterate the importance of buying securities for their underlying business value, versus an emphasis on the stock price itself. More can be found about the author : Benjamin Graham here.
Benjamin Graham (author) starts the chapter with carefully capturing the nuances and the difference between an “investor” and a “speculator”.
In today’s world and even 50 years ago when this book was being written, Ben tells us that anyone who would even invest a single penny in the share market would consider himself as an Investor . But that is totally a case of Speculation if we go by the definition of Ben Graham.
According to Graham, “An investor judge the market price by established standards of value, while a speculator base [their] standards of value upon market price.” Ben beautifully explains the above concept by stating that one should invest only if one would be comfortable owning a stock even if one had no way of knowing its daily share price.
Taking this further and serving it more lucidly , Graham states “People who invest make money for themselves; people who speculate make money for their brokers.”
Graham then divides the investor into two broad categories: Aggressive Investor and the Defensive Investor and starts by enlightening us with what the Aggressive Investor needs to do to continually find better than average results. According to him, an Aggressive Investor should focus on investment practices that are :
- Inherently sound and promising
- Not popular on Wall Street
For the Defensive Investors, he has served the below mentioned supplementary concepts or practices :
- Purchasing shares of well established investment funds as an alternative to creating his own common-stock portfolio.
- The implementation of the device “Dollar-Cost Averaging”, which simply means that the investor invests the same number of dollars at some fixed time interval instead of randomly buying shares for a bulk amount of money, once in a blue moon !!
He concludes for the defensive investors by concluding that for them, their weightage for ‘bonds’ and ‘stocks’ should be almost equal if not actually equal.
At the end, he even has some mantras in his pocket for those “practitioner” investor who still want their hands dirty by being a ‘speculator’ to some extent. He tells us that such people should never have more than 10% of their assets into their mad money account, no matter what happens.
As I continue to work through the chapters, my goal is to post on each chapter’s central tenets. If you find something out of place, or care to strike up a discussion feel free to comment.
Recommend the article if you found value in it and would like to follow along.
-Nikhil