How to be an Intelligent Investor (Benjamin Graham) – Part 1

Just buy and buy, everything will eventually go up

Content shared here are learnt, copied and paraphrase from the book Intelligent Investor by Benjamin Graham  – So credits to Him!

  1. What is investing?

    According to Graham, Investing consists equally of three elements: You must thoroughly analyze a company, and the soundness of its underlying businesses,before you buy its stock; you must deliberately protect yourself against serious losses; you must aspire to “adequate,” not extraordinary, performance.

    • Note to self (From his book) : “You must never delude yourself into thinking you’re investing when you’re speculating. Speculating becomes mortally dangerous the moment you begin to take it seriously. You must put strict limits on the amount you are willing to wager” | ” More basically still, the intelligent investor must always be on guard against whatever is unexpected and underestimated.”
  2. Two inflation fighters

    Real Estate Investment Trust (REIT) & Treasury Inflation-Protected Securities (TIPS)

  3. Do not forecast the future exclusively by extrapolating (based on) the past

    “It is the mark of an educated mind to expect that amount of exactness which the nature of the particular subject admits. It is equally unreasonable to accept merely probable conclusion from a mathematician and to demand strict demonstration from an orator”

    • He said to focus and think about future returns.
      • The stock market’s performance depends on three factors: real growth (The rise of companies’ earning and dividends), inflationary growth (The general rise of prices throughout the economy) and speculative growth – or decline(any increase or decrease in the investing public’s appetite for stocks)
  4. When should you buy preferred stocks?

    “Experience teaches that the time to buy preferred stocks is when their price is unduly depressed by temporary adversity. (At such times they may be well suited to the aggressive investor but too unconventional for the defensive investor.) In other words, they should be bought on a bargain basis or not at all.”

    • Reminder to self : ” With every new wave of optimism or pessimism, we are ready to abandon history and time-tested principles, but we cling tenaciously and unquestioningly to our prejudices.” – To be aware of our behaviour to change it.
  5. Two ways to be an intelligent investor

    1. By continually researching, selecting, and monitoring a dynamic mix of stocks, bonds or mutual funds.
    2. By creating a permanent portfolio that runs on auto pilot and require no further effort( But generates very little excitement) – Index
  6. Recommendation by Benjamin Graham himself

    1. He insist that everyone should keep a minimum of 25% of your portfolio value in bond
    2. Concentrate on the larger companies that are going through a period of unpopularity.
    3. Four rules to follow
      • There should be adequate though not excessive diversification. This might mean a minimum of ten different issues and a maximum of about thirty.
      • Each company selected should be large, prominent, and conservatively financed.
      • Each company should have a long record of continuous dividend payments
      • The investor should impose some limit on the price he will pay for an issue in relation to its average earning over the past 7 years. Suggested limit be set at 25 times such average earnings and not more than 20 times those of the last twelve-month period.
  7. What is a growth stock?

    “A growth stock may be defined as one that has done this in the past and is expect to do so in the future”

As this book have taught me alot of stuff, I would divide it into two post! Hopefully you have picked up a thing or two! 🙂

“The wisdom of having courage in depressed markets is vindicated not only by the voice of experience but also by application of plausible techniques of value analysis” – Benjamin Graham

If you’re gonna ask which book was it…. It is Intelligent Investor, Revised Edition, (Updated with new commentary by Jason Zweig” – The definitive book on value investing ( Preface and appendix by Warren E. Buffet)

“+1 knowledge point”

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2 thoughts on “How to be an Intelligent Investor (Benjamin Graham) – Part 1

  1. Pingback: Ascendas – What really matters in a REIT |

  2. Pingback: Ascendas – What really matters in a REIT

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