INTELLIGENT INVESTOR by Benjamin Graham
I’ve been reading the book titled Intelligent Investor by Benjamin Graham. This is a highly respected book among investors and stock traders including the world’s richest stock trader Mr. Warren Buffet. It is a priceless piece of work for to-be-investors around the world.
The author of this book, Benjamin Graham spent decades studying psychology and history of stock markets around the world.
Graham was a brilliant researcher and investor. He had a great ability to research about stocks to a microscopic level, exposing all finer details.
He had a great ability to scan through annual reports filed at the Interstate Commerce Commission by the oil pipeline companies.
His great common sense and extraordinary intellectual powers when combined with his vast experience lead to high quality literary outputs in form of books.
There are theories in the stock market. The leading is Dow Theory. It states that the primary trend is the major stock market trend. This is the trend that affects the secondary trends in the market.
As a stock trader, you should aim at those industries which have the greatest probability of growing in the future. Pick out the most promising companies from the pile and buy their stocks, them keep them for long-haul.
The author advises us (readers) to buy stocks the way we buy groceries not the way we buy perfume. History repeats itself. It is prudent for us to read widely on stock market trading and learn from other people’s mistakes. For instance, Graham had over 5 decades of stock trading experience.
There are no shortcuts in investing. All you need are sound investment principles and the expected results are sound results.
It is no-brainer that no matter how hard you work in the stock market, the prices will fall from time to time.
Who is an intelligent investor?
When Ben Graham talks about intelligent investor, he simply means patience and disciplined investment decision-maker.
Does higher education make one a better stock trader?
No. Higher education or high Intelligence Quotient (IQ) is not pre-requisite for one to become an intelligent investor. This is so encouraging. The author goes to great lengths to illustrate this point.
The above statement notwithstanding, an intelligent investor should have a good head for data in order to have an easy time on the Wall Street, Nairobi Stock Exchange or any other stock market territory you are operating under.
Investment Vs Speculation
Benjamin Graham advises all investors to divide their investments between common stocks and high-grade bonds. To be exact, the portion held in common stocks shouldn’t be more than 75 percent and that held in bonds should never be less than 25 percent.
Bonds are very attractive. They have stable prices unlike stocks. On the other hand, you can’t predict the movement of stock market.
The bond markets have been doing well compared to stocks since 1963. This is by all means an impressive record.
Benjamin Graham introduces us to new concepts such as Dow Jones Industrial Average. Reading this book will probably make you a shrewd or skilled investor.
If you are a defensive investor, you will learn a lot from this book. You will learn how to buy stocks of stable companies with profitable operations.
As an investor, you are advised to stop speculating and start investing. That way, you will increase your chances of building wealth. In order to invest, start with a detailed analysis to identify safe stocks in order to safeguard your principal.
The following are the main steps for investing:
- Carry out a thoroughly company analysis and determine the soundness of the businesses under focus before you purchase its shares.
- Always target to protect yourself from serious losses.
- Do not aim at extraordinary performances during stock trading, instead seek for adequate outcome.
Those people who are always checking out on incessant stream of stock quotes are speculators. The regular quotes is oxygen for them. You cut it off, they die. Avoid this direction. Graham advises us to buy stocks with which you are comfortable so that you do not have to be checking the daily quotes.
When you invest, you generate money for yourself but when you speculate, you make money for your brokers. Make a good choice.
Give stock trading a long-term approach. Graham points out the basic principles of stock trading including the fact that stocks do well or badly because the firms behind them perform well or badly. That is it.
Investment and Inflation
Inflation is when the purchasing power of a dollar shrinks. Those with a fixed dollar income suffer as a result of increased standard of living.