Book Review: “The Intelligent Investor”
Here is the first edition of reviews on The Rational Perspective and what better way to inaugurate than to have a book review on possibly the greatest book specifically on securities investment ever produced. The book is authored by Benjamin Graham who has been revered highly by the investing giant of present age, Warren Buffet, honoring him as a father figure and a mentor.
The review aims to trim down the idea of the book into several hundred words, coupled with comments about how I personally find the book. It should paint an outline for you and hopefully cultivate the desire within you to read the actual book yourself in its entirety.
THE INTELLIGENT INVESTOR
The book first came out in the market in 1949, attempting to explain value investing, successfully I might add, to the world of securities investment. It was followed by four revised editions with the latest one published in 1973. Thus, one has to understand the book in the context in which it was written. Despite being written half a century ago, the subsequent decades only served to vindicate the sound investment guidance given in the book.
Benjamin Graham, based upon this book, is considered to be the pioneer of the value investing approach. In fact, it is only after this book that the idea received popular acclaim around the globe.
20 Chapters To a Solitary Statement
To begin with it, TRP attempts to squeeze the entire content of the book in a one-liner:
An exceptionally descriptive text, full of painstaking analysis, investments principles, cases and supporting examples, that explores, explicitly and implicitly, the emotional, psychological and a realistic paradigm of securities investment.
Cementing the Fundamentals
Every chapter of the book is filled with practical investment advice and concrete examples to support it. For instance, it begins with laying the foundations upon contrasting juxtaposition of investment and speculation, making helpful distinctions between the two. What actually makes one worthy enough to be called an ‘investor’ is described, mainly as a function of strong emotional character than a highly intellectual brain.
The intelligent investor, suggests Graham, has to really understand himself/herself and his own personality that would enable him to adopt investment strategies accordingly. Primarily depending on the degree of time dedication and risk sustainability, after reading the book, you would hopefully categorize yourself as either a defensive investor or an enterprising investor (the term has been used interchangeably with ‘aggressive’ in the book).
There are several chapters devoted to each investment approach. What provides real value to the reader is the understandable specificity with which these different strategies are elaborated. From selection of companies to profit expectation for each investor type, everything is thoroughly laid out for the reader’s knowledge.
Making the Value Investment Case
Throughout the book, Ben repeatedly highlights the significance of increased emotional strength in order to make independent and logical investments decisions. Simultaneously, he laments how market continues to ignore this aspect of investment mercilessly (Graham uses an interesting analogy for the market behavior relating it to an extremely irrational person called “Mr. Market”).
Benjamin Graham keeps strengthening his case for value investing over and over again, saying that “the stock market goes far wrong” in its stock market valuation. It is then that the opportunity comes forth to make profit for the astute investor, exploiting the difference between real value of the stock and the price given to it by the market.
Another highlight of the book is how it gets brutally honest, for the ultimate benefit of the reader, about putting a leash to your expectations for returns generated by your investment policy. What sets it apart from other books is the fact that it does not promote a tempting, but superficial, get-rich-quick approach and, instead, brings up the point of generating average portfolio returns consistently over a long period of time to be more than a success for the investor. Although, the text does emphasize that the more time and effort one would be able to dedicate to understanding this activity, the more he would get out of it.
The book boasts a solid ending with the last chapter describing the ‘Margin of Safety’ principle termed as ‘a central concept of investment’. As highlighted by Graham himself, his entire investment philosophy revolves around this concept. He maintains that, eventually, what comes out as a factor of paramount importance in investment is accurate determination of margin of safety when trusting a stock with your money. Here again, Graham differs with the common practice, insisting that “calculating your margin of safety on the basis of past earnings is a flawed strategy”. He then complements his argument with several techniques for calculating margin of safety for both stocks and bonds. It would be an injustice to this Chapter if it is not mentioned that it has also received particular recognition by Warren Buffet in the preface of the book (4th Edition) .
“The Intelligent Investor” is rich with graphs, tables, numbers and multi-dimensional analysis of the propositions and principles that it brings under its microscope. Time and again, Graham also opposes his own arguments to help the reader grasp their validity. Each investment principle in the book is backed by practical formula that indirectly suggests the importance of being extremely precise in your own investment approach.
If you really want to understand securities investment, even if you’re a layman and not particularly associated with finance, want to start from the basics and wish for yourself to be equipped with valuable investment insight, this is the perfect book for you. It is quite dense but undoubtedly provides disproportionately more value than the money you would pay for it.
When the world’s most successful investor alive, Buffett, labels the book as “the best book on investment ever written”, you can’t fail to heed the call and let it pass just like that. No, you instead go grab a copy and load yourself up with the priceless knowledge that it contains.
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