The concept of "The Intelligent Investor" is the title of a very famous book by Benjamin Graham, considered the father of value investing. First published in 1949, the book remains a fundamental and influential reference in the world of investing to this day.
The essence of the "intelligent investor"
The book's primary message isn't to seek quick ways to get rich, but rather to teach investors how to avoid critical mistakes and develop a rational long-term investment strategy. Graham focuses on separating investing from speculation and presents rigorous principles for stock analysis and decision-making.
Basic principles of the intelligent investor:
* Mr. Market:
Graham introduces the concept of "Mr. Market," a fictional character who represents the volatile moods of the stock market. "Mr. Market" comes to you every day with offers to buy or sell your shares in companies. Some days, he is very optimistic and offers unreasonably high prices, while other days, he is very pessimistic and offers very low prices.
A smart investor doesn't get carried away by Mr. Market's volatility, but rather exploits it. He buys when Mr. Market is bearish and sells when he is bullish.
* Margin of Safety:
This is Graham's most important principle. It means buying stocks at a significant discount to their intrinsic value. In other words, if a company's true (intrinsic) value is $100 per share, you should seek to buy it at a much lower price, such as $70 or $60.
A margin of safety provides a cushion against human error, miscalculations, and unexpected market fluctuations.
* Analyze companies, not prices:
The intelligent investor focuses on analyzing a company's fundamentals, such as its earnings, assets, debt, and management. He doesn't focus on stock price trends or the company's current popularity. The goal is to own a piece of a good business at a reasonable price, not simply buy a security whose price is expected to rise.
*Investment vs. speculation:
Graham clearly distinguishes between investing and speculation:
*Investing: requires careful analysis, a margin of safety, and the search for a reasonable return over the long term.
* Speculation: Relies on predicting price movement, is often risky, and does not rely on intrinsic value analysis.
* An intelligent investor is an investor, not a speculator.
* Defensive investor and venture investor:
Graham classifies investors into two main types:
* Defensive investor: The investor seeks safety above all else. They prefer large, stable companies with a strong financial track record and do not need to spend a lot of time on analysis.
* The adventurous (or active) investor: is someone who devotes more time and effort to searching for special investment opportunities, and may be willing to take a little more risk to achieve higher returns, provided that this is based on in-depth analysis.
Why is the book still relevant?
Although decades have passed since its publication, Graham's principles remain timeless because they focus on:
* Human behavior: Warns against giving in to emotions such as fear and greed that drive investors to make bad decisions.
* Business Fundamentals: Emphasizes that successful investing depends on understanding the true value of companies, not market noise.
* Long-term perspective: Encourages patience and discipline, rather than the pursuit of quick profits.
If you are interested in learning the basics of value investing and building a sound investment strategy, reading “The Intelligent Investor” by Ben
Jamin Graham is an excellent starting point and highly recommended by many, including Warren Buffett, Graham's disciple and one of the world's most successful investors.
