Review: The Intelligent Investor

The Intelligent Investor by Benjamin Graham
My rating: 5 of 5 stars

The classics on "value investment" - written in the 1930s-1970s - and still considered one of the best books on investment ever written. There must be something in it...

And there is indeed a lot. Although the language is old-fashioned, the style is academic and dry and several examples are not relevant anymore, the major principles of Graham sound very reasonable at any time. An intelligent investor must, above all, treat his or her investment in corporate securities as an ownership in an or a claim against an existing business. And when deciding whether to invest in specific security or not, one should apply the same principles as when deciding whether to start up a new business.

..."There are good and bad companies, there is no such thing as a good stock; there are only good stock prices, which come and go."...

Graham's investment philosophy is anchored around the concept of "margin of safety": past behaviour of the company is the best available predictor of its future results (and thus returns on investment). Not a good script for a high-risk speculative investment (which Graham calls exactly that - speculation, not investment)...

In particular, I liked the focus on some physiological pitfalls an investor can encounter. For example, the "home bias": investing in "what I know" (e.g. a store chain I often visit) can be dangerous, since it makes me as an investor lazy and complacent. Or discussion on the role of "Mr.Market" who comes to you every now and then and recommends what your business must be worth or what you should sell it for ("an intelligent investor should never buy a stock because it has gone up or sell one because it has gone down.")

And looking back at my humble history as an investor I must admit that in the long run I got the best returns from where I (before having read this book) was acting in accordance with Graham's principles. And vice versa, speculative and emotional decisions which have not been based on a research, have mostly been disappointing in the end.