“The Intelligent Investor is a realist who sells to optimists and buys from pessimists”— Benjamin Graham
As I’ve finally finished reading this book while vacationing in Hawaii (you can see I was reading this book poolside), I’m going to attempt to do a review of The Intelligent Investor. It is possibly the best investment book ever written. I know my review won’t do the book justice, but I wanted to share with you what I thought of this book. I feel that The Intelligent Investor should be read by every investor BEFORE they invest- I wish I did the same, as I would have done a lot of things quite differently. Hindsight is 20/20 of course, right?
Basically, The Intelligent Investor is so thorough, that it pretty much reads like a textbook- it even has an index at the end of the book. It’s easier to read than a textbook (don’t worry Gen Y’s) and is very interesting and gives you a lot of “ah-ha!” moments. So who is Benjamin Graham? He’s definitely not as “famous” as Warren Buffett, but he was Warren Buffett’s mentor and inspiration. Benjamin Graham is quite possibly the best investor in history- he was Warren Buffett’s teacher, for goodness sake.
The book has 20 chapters and each chapter is followed by commentary from Jason Zweig, a senior writer at Money magazine. Jason gives a more “updated” perspective on the chapter written by Benjamin Graham. He gives modern-day context to the Benjamin Graham excerpts.
So here I go detailing each chapter. Note that the titles that I have for each chapter do not reflect the actual titles of the chapter. My review is going to be very brief, but if you like the book, you should go get it. I’m sorry I’m not going to give away my copy of this book because I’ve already dog-eared all the good pages lol.
Chapter 1: Investment vs Speculation
This chapter basically explains the difference between investing and gambling. I know it may sound completely different, but if you don’t know what you’re investing in, you’re basically gambling but lying to yourself. This chapter tells you how to analyze a company for its value and not surrender to the hype or the “next big thing” (e.g. internet stocks and the dot com boom).
Chapter 2: Investing and Inflation
Chapter two basically recommends you hold bonds (and not 100% stocks) to protect yourself. They also suggest you protect yourself from inflation with REITs or treasury-protected securities. Of course, if you want more detail, go read the book!
Chapter 3: Learning from history
This chapter focuses on the history of the stock market in the past century (and that every bull market comes to an end- same goes for bear markets).
Chapter 4: General Portfolio Policy
Benjamin Graham recommends holding 50% stocks and 50% bonds/cash. It wouldn’t suck so much when your stocks tank to 50% of what you invested in it with half of your portfolio in bonds and cash.
Chapter 5: Be defensive
This chapter tells you not to buy a stock just because you like their product (e.g. you like Starbucks therefore you buy the stock). You need to analyze the financial statements to protect yourself from a risky investment.
Chapter 6: The Don’ts of Investing
Basically telling us NOT to day trade (your broker will always profit, but you will always not profit).
Chapter 7: The Do’s of Investing
Benjamin Graham says growth stocks are fantabulous and bargain hunting is fantabulous. We need to change our minds from “omg! The stock market is tanking! The sky is falling” to “Yay! I can buy myself some good companies at a discount”. This is easier said than done due to our hard-wired brains to think otherwise.
Chapter 8: Market Fluctuations and realizing they will happen
Chapter eight basically says that market fluctuations will happen and always happen; that the key should always be to buy low and sell high (and not the other way around). They have a great analogy (and my favourite take-home message of this book) in this chapter of Mr. Market- he’s manic-depressive and you can’t succumb to his whims. You need to control him and use him to YOUR advantage.
Chapter 9: All about Funds
Benjamin Graham gives a few reasons why investing in funds might not be so hot (a lot due to “behind the scenes” reasons) and why any beginner investor should just invest in a total stock market index fund.
Chapter 10: The Investor and His Advisers
This chapter talks about where investors nowadays are getting their information on which stock to invest in.
Chapter 11: Security Analysis
This chapter goes in-depth about what you need to look for in terms of security analysis and how to read financial reports to make sure you are investing in a good company.
Chapter 12: Things to consider in per-share earnings
Benjamin Graham illustrates the accounting hocus pocus that some companies can do to make their earnings look better than they actually are.
Chapter 13: Comparison of Four Companies
Here’s where the textbook similarity comes out. Benjamin Graham compares four companies and shows you what to look for.
Chapter 14: Stock Selection for the Defensive Investor
This is an excellent chapter- they talk about seven things to look for when evaluating whether a common stock is up to snuff (e.g. a P/E ratio of less than 15).
Chapter 15: Stock Selection for the Enterprising Investor
Basically sums up to finding bargains and practising finding bargains.
Chapter 16: Convertable Issues and Warrants
B.G. explains what these are and why they’re important to look at.
Chapter 17: Four Extremely Instructive Case Histories
Super detailed commentary of what happened with four stocks and why they did well or why they tanked. Jason Zweig provides an updated commentary on stocks we know in current times, such as how AOL bought Time Warner.
Chapter 18: Comparison of Eight Paris of Companies
Again, more practice looking at companies to see if they’re up to snuff for your investing dollars.
Chapter 19: Dividend Policy
This chapter talks about the pros and cons of companies that do or don’t distribute dividends.
Chapter 20: Margin of Safety is the main concept of investing
The final chapter talks about risk and how to minimize it. Breaking even is really hard when you’ve suffered a huge loss, like if you’re down 90% of your investment.
PHEW! Again my review does not do this book justice. Go get it and read it. It’s well worth it.
Readers: Have you read this book? What did you think?