The Intelligent Investor: Helping People Invest Since 1949

The Intelligent Investor, written by Benjamin Graham in 1949, has served as a bible to investors across the world, ever since it has been written. Filled with wise investment nuggets it is perhaps the most influential book on value investing ever written. Warren Buffet described it as “by far the best book ever written on investing” and who are we to argue with the Oracle of Omaha. Below are a few takeaways from the book that can add value to your investment style.

Takeaway 1: If you want to be successful at investing then you have to understand the difference between an investor and a speculator. An intelligent investor would thoroughly analyse all potential investments to determine the risk-return characteristics of the asset. A speculator, on the other hand, is likely to take investment decisions without much analysis, consequently exposing himself to the probability of higher losses.

Takeaway 2: Stock market volatility is here to stay. Thus, it is better to learn how to manage volatility rather than shy away from it. The daily price movement of our investment can sometimes instigate fear in us, encouraging us to make hasty and not well thought out decisions. However, it is better to ignore the daily noise and form our own long-term views on our investments.

Takeaway 3: When making investment decisions always ensure that you have an adequate margin of safety. Margin of safety in stock investing is the difference between the intrinsic value of the company and the price we pay to purchase it. The amount of the price paid is the most important factor in investment. However, it is important to understand that the price paid should always be viewed relative to the value acquired. There is no point in paying a low price for a bad investment. True value emerges when you can buy a quality stock at a low price. 

Takeaway 4: Portfolio diversification is an important aspect of investing. When we invest in stocks with an adequate margin of safety we are reducing the overall probability of loss. Nonetheless, the future is unpredictable and not all our investments will generate the expected returns. Diversification can amplify the benefits of margin of safety by further spreading investment risk across multiple asset classes. 

Takeaway 5: It is imperative to determine your own risk taking capabilities before making any investment decisions. To arrive at your risk profile, you will need to determine your willingness and ability to take risk. The investments that you make and the overall risk of your portfolio should be aligned with your risk profile.

While these are my key takeaways from the book, I would urge every investor to have own copy of the book.