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The Intelligent Investor - Ben Graham

Discussion in 'Trading/Investing Resources' started by Big Andy, Jun 22, 2012.

  1. Big Andy

    Big Andy

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    I really want to read this book as they say its vital for Value Investors. I have the fourth edition of this book but its so hard to read. Can someone tell me what i need to do before reading this book because ive tried but its just too hard to read. Im a value investor if you havent worked out already so there might be a book i can read before that. I dont know just some help would be appreciated.
     
  2. Elliot

    Elliot

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    Bump -

    If anyone has read this book and if this book is a great recommendation for a Beginner ?.

    Cheers,
     
  3. MARKETWINNER

    MARKETWINNER

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    Investors can learn lot of things from this book.

    If we want to pick stocks under the value investing method we can buy one dollar worth of business for 90 cents, 50 cents or in some case below 50 cents. When market players become panic and when we see fire sales we will see some of the massively undervalued stocks. Globally we see some great value in some sectors and stocks now.

    Some Investors and traders are making mistaking mistakes in the current market now. Because they cannot analyse future value of business that they follow.

    Value investing is one of the safest methods in the investment world.
     
  4. extrafattyliver

    extrafattyliver

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    I have read the book and let me summarise it here.

    If you don't know what you are doing then buy a low cost index fund with your stock portfolio. Do not try to pick stocks.

    If you think you know what you are doing, still buy a low cost index fund and only spend 10% of you money picking stocks.

    Trading and financial derivatives are weapons of financial mass destruction.

    Margin of safety, and that is not just limited to investing in the stock market, but any business transaction in general.
     
  5. ROE

    ROE

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    Warren Buffett recommend this book but I think there are better books...this book can be fairly boring
    and only 2 chapter that is really useful ... Mr Market and Margin of Safety ...

    buy for those 2 chapters would probably good enough for you to start out...

    most value investing books emphasis on those 2 principles and they expand into other areas
    of discussion....

    I like this classic...
    http://www.amazon.com/Uncommon-Profits-Writings-Investment-Classics/dp/0471445509
     
  6. Klogg

    Klogg

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    I haven't read this myself, but have heard good things about it...

    As for The Intelligent Investor, it's good, not great. Of course when I started reading this material, I did it a little backward. I started with Security Analysis, googled every term I didn't understand and did the whole thing, start to finish (took me over 6 months from memory, reading 2-3hours a night! Yes, I'm slow lol)
    Having done that, The Intelligent Investor seemed far too light on detail for me...
     
  7. Tano

    Tano

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    Read 'Peter Lynch - one up on wall st' first.

    Here are some of my notes on The Intelligent Investor

    Buying
    • Only invest what you are willing/able to lose
    • Dont buy on impulse or pick stocks randomly
    • Only invest in stocks that make profit (p/e >0)
    • Dont rely on analyst forecasts since they are optimistic and generally wrong. Use past historical data
    • Buy large cap companies with a reasonable stability of earnings and dividend payments over last 10 years
    • Don't buy IPO;s (it may seem cheaper but they are sold with built in broker commission. Also decreased value since IPOs already offered to banks and institutions before public at the initial or underwriting price). Most companies issue IPO when market peaks. Oversupply creates bear market
    • Buy stocks when they are undervalued (2/3 of appraisal value), sell when overpriced
    • The future value of an investment is a function of its present price. The higher you pay the lower your return
    • Time is your friend; impulse is your enemy.
    • Don't try and time or predict the market. its impossible. The future will always surprise
    • Buy from pessimists and sell to optimists. Don't follow the market. Stocks become more riskier as prices rise, stocks on sale in bear market
    • It's tempting to want to get an extra gain (or avoid an extra loss) by trading before the profit result. The problem is that anything in the public domain is likely factored into the company's share price, and anything not in the public domain is likely insider trading!
    • People doing their own research before committing to a trade. (read up on their finances, current situation and projects, supply/demand etc and then analyse their charts. Are they undervalued? Do the stocks look volatile? How much volume of stock is traded on a daily basis?)
    • Dollar Cost Averaging: The defensive investor devotes the same $$ each month.or quarter (ie buys more when shares are low, less when high)
    • Don't buy preferred stock or only buy on heavy discount - preferred stock has no legal ownership of company profits except dividend and less secure than bonds (secondary claim on company assets after bonds). Company can call (forcibly buy back) preferred shares when interest rates drop or credit rating improves.
    • Don't buy stock for only dividend yield, the company must be solid and stock price must be reasonable
    • The bigger a company gets the slower they grow
    • Successful investment= choice of industries that are likely to grow in future and then identifying the promising companies
    • Obvious prospects for physical growth do not translate into obvious profits
    • Limit to issues not selling far above their tangible asset value=sound investment (growth companies trading several times NTA are too dependant on market fluctuations)
    • Don't speculate, but if you do then don't risk more than your willing to loose. An investor calculates what a stock is worth, a speculator makes a gamble that the price will go up
    • Don't buy stocks on margin , don't day trade*risk and high brokerage), don't use stock-picking systems or buy hot stock and do not short sell!!
    • Margin of Safety=Never overpay no matter how exciting the investment.
    • The more enthusiastic the public becomes about a company the faster the advance compared with actual growth and the riskier it becomes.


    Stock Fluctuations
    • Do not follow stock picks or forecasts from brokers or articles. (any easy moneymaking in stockmarket that is easily described and followed by a lot of people won't last - Regress to mean (trends reverse))
    • The longer a bull market rises the more people forget that a bear market is approaching.
    • Expect prices to fluctuate and dont be concerned with declines or excited with advances i. Its quite probable that stocks you own wth gain >50% from lowest price and loose >33% from highest price irrespective of the market - just ignore temptation to sell. - eg Price is $10, 50% rise= $15, 33% fall = back to $10)
    • Never buy a stock because of a immediately substantial rise or sell because of a substantial drop. Ignore daily stock prices and market sentiment and value the stock based on its operations and financial position.
    • Smaller companies of poor quality are overvalued in a bull market and suffer more serious losses in bear market will longer delays to recovery

    General
    • To obtain better than average results for enterprising investor
    • Trade the market (buy when market advances, sell when decline)
    • Short term selectivity (buying stocks of companies reporting or expected to report increased earnings) but current year growth is common knowledge, next years growth already predicated and priced
    • Long Term (excellent record of past growth and likely to continue in future or no impressive results but will later) but same problem as above
    • So for better results choose a company that is sound and promising and which is not popular, it could be not popular due to a lack of interest or unjustified popular prejudice"
    • "Grahams Three Rules
    • You must thoroughly analyse a company and its soundness of underlying business before you buy a stock
    • You must deliberately protect yourself against serious losses
    • You must aspire to adequate (not extraordinary) performance"
    • HIgh inflation=high interest and wages, need for capital growth = debt outgrew profits. REITs and TIPS help protect against inflation.
    • Invest 2% of portfolio in gold/silver in a mutual fund
     
  8. Julia

    Julia In Memoriam

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    I've never read The Intelligent Investor.
    Could you say whether the above summary is what he has actually said, or rather, your interpretation of that?
     
  9. So_Cynical

    So_Cynical The Contrarian Averager

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    I listened to it a while back (audio book 70's edition) its very simplistic and the philosophy is incredibly conservative, its a pretty pedestrian book that assumes that the general public are idiots which may have been true in the 50's as far as financial/markets education was concerned.

    I'm listening to Taleb's 'Antifragile: Things That Gain from Disorder' at the moment and finding it heavy going and yet with moments of enlightenment, some content that really makes you think, not much thinking required with The Intelligent Investor. :2twocents

    http://en.wikipedia.org/wiki/Antifragile:_Things_That_Gain_from_Disorder
     
  10. Tano

    Tano

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    From memory it's about 95% what was written. I may have added a point or two from another book. It's a good read and you cannot condense 600 pages into a 1 Page summary. Buy and read the book and try to implement his teachings. I couldn't totally convince myself everything was gospel. Has the market changed since the book was written, is everything in the book applicable to the asx?. I can't answer the question since I am a beginner
     
  11. Julia

    Julia In Memoriam

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    No thanks. Not interested.
    I was surprised at the simplistic and unrealistic nature of some of the points. That's why I asked about their authorship.
     
  12. burglar

    burglar

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    May have been neither simplistic nor unrealistic at the time of authorship ...
    it was written before computers! :p:
     
  13. Julia

    Julia In Memoriam

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    The points I found simplistic and unrealistic have nothing to do with the existence or otherwise of computers.
    No further comment from me. I was just curious about who had compiled the list.
     
  14. burglar

    burglar

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    I was merely pointing out that investing has moved along a little since Ben Graham.

    My mention of computers have nothing to do with their existence, per se.
    I was alluding to the long, long time since he penned his book.

    edit "The Intelligent Investor published in 1949"
     
  15. Klogg

    Klogg

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    For the most part, it hasn't... The concepts remain as far as I'm concerned.

    Graham's more detailed book, 'Security Analysis' is as valid now as it was then... Just that there are far more derivative products on offer now.
     
  16. Ves

    Ves Beyond Good and Evil

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    Yup, well worth it just to read those two chapters. They're both central to the craft, and he explains them pretty clearly.

    Ben Graham's firm, using investment styles based on the simple philosophy in his books, reputedly achieved annualized returns of about 20% from 1936 to 1956, far outpacing the 12.2% average return for the broader market over that time.

    Model Graham portfolios and screeners based on the simple rules in the books have been setup dating as far back as the 70s and have generally performed very well.

    It is not the only way to achieve good results, but there is plenty of evidence out there to suggest that you can make it work with a bit of thought and work.

    edit: the problem with a lot of the Graham-style model portfolios is that they are occasionally prone to massive drawdowns - if you cannot psychologically handle this then the style is unlikely to outperform the market / be profitable in the long-term.
     
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