Fifteen years ago, my mom gave me a book that would change my life: The Intelligent Investor, by Benjamin Graham. Prior to that time, I was primarily investing in mutual funds, and did not have a coherent investment philosophy. The Intelligent Investor provided me with that philosophy.
What are the main lessons of this book?
- Don’t overinvest in equities. Markets wash out occasionally, and it’s good to have some bonds around.
- Don’t underinvest in equities. Bonds can only do so much for you, and it is good to deploy capital into equities when they are out of favor.
- Stocks provide modest compensation against inflation risks.
- Avoid callable bonds. Avoid preferred stocks.
- Be conservative in bond investing. Read the prospectus carefully. Often a bond is less safe than one would expect, and occasionally, it offers more value than one would expect.
- Purchase bargain issues on a net asset value basis when you can find them, but be careful of quality issues.
- Volatility of stock prices can be your friend if you understand the underlying value of a well-financed corporation.
- Having a longer-term investment horizon is valuable, because one can take advantage of short-term fluctuations in price.
- Growth is worth paying up for, but be disciplined. Don’t overpay.
- Be wary of mutual funds.
- Be wary of experts.
- Pay attention to the balance sheet; don’t invest in companies that are inadequately financed.
- Review average earnings of cyclical companies.
- Buy them safe and cheap. Don’t overpay for growth and trendiness.
- Avoid highly acquisitive companies.
- Watch cash flow, and question unusual accounting treatments.
- Be careful with unseasoned (new) companies.
- Strong dividend policies, in companies that can support the dividends, are an indicator of value.
- Aim for a margin of safety in all investing.
That’s my quick synopsis of the book. Though I am not a strict Graham-and-Dodd investor (who is?), I apply the basic principles to most of what I do. This is still a relevant book today because the principles are timeless. If you want the updated version with writing from Jason Zweig, that’s fine. You gain in current relevance, and lose a little in nuance. Graham was a very bright guy. I give Zweig credit for trying, but aside from Buffett or Munger, who would really be adequate to revise The Intelligent Investor? I don’t think I would be adequate to the task….
Classic:
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As Revised by Jason Zweig:
</p><p> </p> <p>Full disclosure: I get a small payment on the sale of the books, but if you are buying from Amazon anyway, it won’t increase your costs.</p>
A must for investors, this is a tremendous book. I think the thing that I learned most from this book is that valuation will always matter at some point. In this age there are numerous people who like to discount valuation methods saying only growth is needed, this book provides some good perspective.
“The Four Filters Invention of Warren Buffett and Charlie Munger. Two Friends Transformed Behavioral Finance.”
by Bud Labitan Paperback. ISBN 978-0-6152-4129-6
http://www.lulu.com/content/3215722
Paperback book $32.95 Printed: 148 pages, 6″ x 9″, perfect binding.
Description: “The Four Filters Invention of Warren Buffett and Charlie Munger” examines each of the basic steps they perform in “framing and making” an investment decision. This book is a focused look into this amazing invention within “Behavioral Finance.” The genius of Buffett and Munger’s parsimonious four filters process was to “capture all the important stakeholders” in a “multi-variable” equation or formula. Imagine…Products, Enduring Customers, Managers, and Margin-of-Safety… all in one mixed “qual + quant” formula. Other important ideas are embedded in each chapter. The book can be used as a supplemental textbook in a Valuation or Decision Sciences course.
Bud, you only get one post like that. The next time, buy an ad at blogads for my site. It is remarkably cheap and credible.
[...] With that, I recommend the book to those that have enough maturity to know that they will have to bring their own risk control models to the game. His methods presuppose a degree of ability in interpreting the fundamentals of companies, so I do not recommend this book to beginners; it would be a dangerous way to start out in investing. Better to start with Ben Graham. [...]
[...] most teens. Marty Whitman is easy to read as well. But I always liked Ben Graham, and I think The Intelligent Investor is accessible to the average teenager. Good investing is not complex… but often we make it [...]