Successful investing does not require stratospheric IQ, insider information, or luck for that matter.
Instead what’s needed is a sound intellectual framework for making decisions, combined with an ability to keep emotions from ruining it.
In “The Intelligent Investor”, Benjamin Graham presents such a framework together with logic that will help to keep your emotions under control.
Warren buffet is 3rd richest man in the world. He is still considered one of the best investors in the world. Warren buffet says That Intelligent investor is the best investing book and this book is written by his mentor Benjamin Graham, he learned from him and became so one of the best stock market investors and investment gurus. Not only Warren Buffet but many other investors also consider this book as an Investment Bible.
Truly this is one of the best books, therefore today I will share 3 important things with the core fundamentals of this book which you can understand easily and can become a great investor and a successful person so let’s begin.
3 Advice on Stock Market Investing – The Intelligent Investor
#1 Be Mr. Market
An Interesting concept that Benjamin has shared in this book is – the share market’s Mr. Market concept suppose you are an owner of a business and you have a partner named Mr. Market.
Now Mr. Market comes to your home and gives you different-different offers You can either buy his business or can sell yours now an interesting thing: Mr. Market is a very emotional person he is normal but in the flow of emotion he sometimes gives more than value or less than value.
Example: suppose your business intrinsic value is $1000 but Mr. Market doesn’t care about it when Mr.market is happy he is ready to give $2000 but when he is upset then for the business worth $1000 he is not even ready to give $500 but the best part is Mr. Market never force, he will never force you to buy or sell your business at any price
he just gives Opportunity now this parable is simple and very deep because truly stock market=Mr.Market is not logical always in fact it changes as per the people’s emotions
and sell things to people in lesser or at higher price of its actual value
Therefore Benjamin says that if you want to be an intelligent investor then do business with Mr. Market when he is selling a business less than its actual value and sell when you are getting more than your actual business value.
In short, follow the concept Buy Low, Sell High.
#2 Be Defensive investors
These are the investors also known as passive investors means who do very less trading.
Benjamin Graham usually asks people to be Defensive investors because the fact is many people don’t have enough time to research one-one company and then study them and then come to a decision when to buy or sell the stocks.
That’s why even I will suggest you be defensive investors who play long-term and play safe.
Now I will share 9 fundamentals that will help you to become a great defensive investor.
First- to be a defensive investor divide your portfolio is 50-50 percent example: if you have $1000 to invest then invest $500 on stocks and keep $500 in bonds or cash or invest in other investment options and Maintain this 50-50 percent ratio.
Suppose you get 10 percent profit on stock and you have 60 percent money on stocks then remove 10 percent from it and again maintain 50-50 percent ratio and do it on a specific interval. Like when you receive your salary at the start of the month.
This concept is also known as Dollar Cost Average. There are 8 more things on which defensive investors must focus, I will share them in brief
1) Diversification – Diversification means investing in 10 to 30 companies that to in different-different industries.
2) Large companies – Invest in big companies which are big in size and established several years ago.
3) Conservatively financed – Invest in companies that are conservatively financed whose current ratio should be 200 percent companies. In easy words whose assets should be double than its liabilities
4) Dividend History – Invest in companies that are giving dividends continuously for the last 10-20 years.
5) Earning History – Invest in companies that did not have an earning deficit for the last 10-20 years.
6) Growth – Invest in companies that are growing by at least 3 percent every year for 10 years.
7) Cheap assets – Invest in companies whose stock price should not be more than 1.5 percent times its Net Asset Value.
8) Cheap Earning – Invest in a company whose P.E ratio is less than 15 for the last year.
Now many can find this very complicated hence there is an easy alternative today which is known as low-risk mutual funds and index funds.
#3 Margin of Safety
Graham explains the margin of safety by giving one simple example.
Suppose a ship writer wants to make a ship that should handle 50 people’s weight now for this, he won’t create a ship that only carries 50 people’s weight. He will make that ship so strong that it will be able to handle 50 or 100 people’s weight and he will do that because by that there will be safety that ship won’t sink.
Now the consideration of this extra weight is known as the Margin of safety.
The same thing even you should consider while investing you must be aware that the price of a stock in the stock market is not as same as its real value hence by keeping a margin of safety in mind Benjamin recommends not to give more than 2/3rd of its value.
See maximum people’s problem is that they buy 50 dollar value stock in 50 dollar only and expect that its price will rise in future and it will benefit them.
However, an intelligent investor keeps a margin of safety and buys that 50-dollar stock in 40 dollars and gets profit immediately after buying it and don’t need to depend on the market.
What do you think of Graham’s advice? Are they still as applicable today, as they were back in the 90s?
Share your thoughts with other viewers in the comments below.
As always, if you want me to summarize a book on investing, personal finance or money management, please comment on that as well.
And if you find that any of the takeaways of this book is especially interesting and want me to elaborate on them, don’t be shy, you may comment on that too!
Thanks for reading this post.
Happy Investing!
