The Intelligent Investor

Classic work by Benjamin Graham

Since I just wrote a blog last week about an investing book, I had recently read, I thought I would continue the trend by writing about another investment book which I recently finished. I didn’t read it exactly; it was an audible book which I listened to during my daily run. So although this isn’t about software, I thought it would be interesting to share a few thoughts about this book.

As I mentioned in my other blog piece about Unstoppable Prosperity, although we are in the hand-crafted custom software business, we like to see our clients and their businesses succeed, and investing is one part of succeeding. As they say, the one thing which rich people have in common is that they are often owners in other companies, often through the stock market. So in that vein, then, here are my thoughts about the book The Intelligent Investor by Benjamin Graham.

Here is the commentary on the book from Amazon:

The greatest investment advisor of the twentieth century, Benjamin Graham, taught and inspired people worldwide. Graham’s philosophy of “value investing” — which shields investors from substantial error and teaches them to develop long-term strategies — has made The Intelligent Investor the stock market bible ever since its original publication in 1949.

Warren Buffet described it as “by far the best book ever written on investing”.

So with those kind of accolades, I could hardly pass it up.

As stated in the Amazon summary, the book is all about ‘value investing’. That is, Graham is very focused on the fundamentals; what exactly is a company worth. He is not so interested in the stock price, as in the value of that stock. An inexpensive stock could be very expensive if the company goes down in value, while an expensive stock, could be quite a good deal if the company it represents is a fundamentally financially sound institution which continues to turn a profit year after year.

So Graham very strongly encourages a person to do their due diligence and study the company well before buying the stock. And then if one determines that the current stock price is actually under-valued, go ahead and make the purchase. As they say in the real estate market, when you are buying property you make your profit when you purchase it; selling it only just realizes the value of the property when you made that initial purchase. In many ways, the stock market is the same. If a company is fundamentally sound, then purchasing their stock is earning you money.

So his focus on the ‘intelligent investor’ is one that does not fall to the fads, or gets pulled along with the hype and excitement of some new growth stock. He shares many examples in the book of kind of boring stocks which were actually hiding tremendous value. While much of the world is running after the next shiny thing, the intelligent investor is doing his/her homework, and finding stocks which belong to strong companies which are financially healthy. Graham doesn’t go for all the various Wall Street gimmicks; he likes the tried and true, boring but stable companies which turn a profit, provide a reasonable dividend and just keep growing.

Now, one caveat about the book is that it is filled with many, many pages of stats and facts, numbers and histories going all the way back to the early 20th century. Graham wrote the book in 1949, so he reaches back before that time from his years of experience and shows the trajectories of various stocks. Then he revised the book several times, and so we get updates going all the way into the 1970’s. Then the current editors of the book add their own commentary to each chapter to update the book into the realities of the 21st century. So in some ways it is quite helpful to get over 100 years of stocks (and bond) history in one book. But it also can get tedious at a few points.

The best benefit of the book is to pick up his investing philosophy which is a conservative approach to stocks, doing the homework, being smart, and above all following the most important rule of the stock market, Do not lose money. Easier said than done, but eminently more probable if you follow the guidelines of this classic book.