How to be an Intelligent Investor (Benjamin Graham) – Part 2

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

  1. The power of Financial History

    “Financial History says clearly that the investor may expect satisfactory results, on the average, from secondary common stocks only if he buys them for less than their value to a private owner, that is, on a bargain basis”

    • Note to self : “A great compnay is not a great investment if you pay too much for the stock”
  2. Thoughts about market timing

    “In the financial markets, hindsight is forever 20/20, but foresight is legally blind. And thus, for most investors, market timing is a practical and emotional impossibility”

  3. Companies with fast and big growth

    “The bigger they get, the slower they grow. A $1 billion company can double it sales fairly easily; but where can a $50 billion company turn to find another $50 billion in business?”

  4. When should you buy growth stock?

    “Growth stocks are worth buying when their prices are reasonable, but when their price/earning ratio go much above 25 or 30 the odds get ugly: Journalist Carol Loomis found that from 1960 through 1999, only eight of the largest 150 companies on the Fortune 500 list managed to raised their earnings by an annual average of at leat 15% for two decades. The reasearch firm of Sanford C. Bernstein & Co. showed that only 10% of large U.S. companies had increased their earnings by 20% for at least five consecutive years; only 3% had grown by 20% for at least 10 years straight; and not a single one had done it for 15 years in a row.

  5. Benjamin’s method Net nets

    ” To see whether a stock is selling for less than the value of net working capital.”

    • Take the company’s current assets, subtract its total liabilities, including any preferred stock and long-term debt.
  6. Consequences of buying overvalued stock

    “Prices well above their net asset value (or book value, or ” balance-sheet value”). In paying these market premiums the investors gives precious hostages to fortunes, for he must depend on the stock market itself to validate his commitments”

    • “The premium over book value that may be involved can be considered as a kind of extra fee paid for the advantage of stock-exchange listing and the marketability that goes with it”
    • Note to self: ” A caution is needed here. A stock does not become a sound investment merely because it can be bought at close to its asset value.”
  7. What does price fluctuation means?

    For true investor, it provide him/her with an opportunity to buy wisely when price fall sharply and to sell wisely when they advance a great deal.

  8. What is an investor’s primary interest?

    The investor’s primary interest lies in acquiring and holding suitable securities at suitable prices.

    • Note to self : “Instead recognize that investing intelligently is about controlling the controllable” – E.g Brokerage cost, trading frequency, patience and ownership cost
  9. Benjamin Graham’s Value Calculation Method

    Value = Current (Normal) Earnings x (8.5 plus twice the expected annual growth rate) The growth rate use should be in the range of 7 – 10 years

There are still many content that has been taught here that are not shared due to the length of it! Some of the things that are not shared includes, what kind of debt should companies have or elements should you consider before purchasing them, examples of comparison between big corporation, deeper example and explanation of how Benjamin purchases a stock, How to use price multiplier, idea price to earning ratios and etc.

Remember that contents here are learnt, copied and paraphrase from the book and all credits should go to him! 

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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