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The Intelligent Investor Stock Book Summary and Review

31 Jul 2023

Introduction:

Almost everyone entering the stock market has one common aim, i.e., making loads of money in less time. However, not everyone can achieve the same success in it. The historic stats suggest that only 10% of stock market investors tend to make consistent money. So, what do these people do that the remaining 90% don’t?

You should learn the art from one of the most successful investors of all time – Mr Benjamin Graham. Often called the ‘Father of Value Investing’, he has written his basic investment principles in a book named “The Intelligent Investor”. This book was published in 1949 and is still considered the best investment guide to hit the market ever.

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By reading The Intelligent Investor summary on this page, you can explore the principles of value investing that Mr Graham wanted to teach to every investor.

Three things that ‘The Intelligent Investor’ aims to teach you

As an investor, you can find answers to the following three investment-related questions in the book “The Intelligent Investor”:

  1. How to minimise the chances of suffering losses from your investments?
  2. How to make maximum profits out of your investments?
  3. How to allow your investments to work to their maximum potential?

Mr Graham believes that an intelligent investor must practice the following principles to solve the problems stated above:

  • Always invest for the long term. Do not try to make crazy profits by timing the market
  • Never trust Mr Market. He can be extremely irrational and volatile in the short term
  • Derive an investment formula and stick to it irrespective of the current scenario

‘The Intelligent Investor’ Book Review – A Chapter-By-Chapter Analysis

Below are the different chapters of the book and their gist:

1. Investment versus Speculation

Mr Graham, in his book, has stated that there is a vast difference between investors and speculators. He believes intelligent investors don’t make investment decisions based on speculations. For example, they won’t buy a stock simply because its value is constantly increasing or sell a stock when its value is constantly declining. 

Instead, an intelligent investor does the following three things:

  • Conducts a thorough analysis of the company
  • Make sure the investments are protected from adverse losses
  • Do not look for extraordinary gains in a short duration

2. Investment and Inflation

Intelligent investors consider the impact of inflation while making investment decisions. They understand that if they are getting a return of 4% during a period in which the inflation has increased by 5%, then they have suffered a loss of 1% on their investment.

Further, the book explains that although the stock markets have the potential to provide inflation-beating returns, they aren’t always reliable. So, instead of investing all their money in equity stocks, intelligent investors dedicate a portion of their portfolio to Real Estate Investment Trusts (REITs) and Treasury Inflation-Protected Securities (TIPS).

3. Active and Defensive Investing

Mr, Graham believes that there are two approaches to investing – active and defensive. While both approaches can be profitable, one must know their investment horizon and current circumstances. Intelligent investors don’t decide their investing approach based on their age but their circumstances.

For example, a 23-year-old looking to save for his wedding should not put all his money into equities. Similarly, an 80-year-old already having millions of dollars of money can allot a portion of his investments to the stock markets.

4. Investors and Market Fluctuations

One thing that becomes a reason for failure for most novice investors is market fluctuations. Mr Graham creates an illusionary character called ‘Mr Market” to explain how intelligent investors tackle it. 

According to the author, Mr Market is a weak, emotion-driven entity that cannot be trusted at all. Intelligent investors observe his behaviour but don’t get too involved with it. They always remember their original investment objective and do not deter before it is achieved.

5. Investors and Advisors

Mr Graham is against the strategy of following financial advisors for making investment decisions. He believes that these advisors are not for everyone. Although they can be relied upon for a second opinion, intelligent investors always make crucial investment decisions by themselves.

6. Security Analysis

It can be challenging for rookie investors to make their own investment decisions. So, Mr Graham has a strategy for them known as ‘Security Analysis’. It defines the five factors to measure the worthiness of a stock:

  • The company’s long-term prospects
  • The quality of the company’s management team
  • The company’s capital structure
  • Dividend record
  • Current dividend rate

To Conclude

As evident from “The Intelligent Investor” summary mentioned above, Mr Graham believes in evidence-based investing instead of circumstantial investing. With the insightful investment principles and strategies mentioned in this book, you can achieve financial success in the long term. 

To start your stock investment journey, you can open a free Demat account with Motilal Oswal.

 

Related Articles: How to Open a Demat Account Without a Broker | Factors to Keep in Mind While Opening a Demat account | Factors to Consider When Opening a Demat Account | 10 Points to Remember When Operating your Demat Account | Types Of Demat Account & Trading Account

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