Those who do not remember the past are condemned to repeat it. – Benjamin Graham.
Graham in his book ‘The Intelligent Investor’ has highlighted the specific steps on how to execute an investment strategy. The book is based on fundamental valuation. It provides the basis for making business like decisions based on fundamental investing principles.
In his book, Graham has highlighted the following three principals for intelligent investing.
- There are 3 principles to intelligent investing.
- Never trust Mr. Market.
- Don’t go with the emotions.
According to Graham, you should keep the activities of investment and speculation different. You cannot be carried away with emotions. Graham has given pretty old examples, but when it comes to the commentary by Jason Zweig, I understand his examples, because they are the examples of the company which I know.
During inflationary pressure, one should opt for diversified portfolio, explains Graham in the chapter about inflation. One of the best things of the book which I felt was the greatest advice given by Benjamin. He said that investors should never ignore valuation. Investors should also not pay whatever price the market is currently asking for the perceived future growth.
Now comes the most loved part of the book – Mr. Market and fluctuations. The stock market always has severe fluctuations.
Graham has exemplified that how a layman should take advantage of the market fluctuation. He has explained with the help of a short story. Graham asked us to imagine we own a share of a company and we have a partner in the business named Mr. Market. He offers us a price every day at which we can buy or sell the share of our company. The intelligent investor knows the fundamental value of Mr. Market’s interest. When Mr. Market is willing to purchase an interest, for more than its fundamental value the intelligent investor probably will sell to him. I love this story because it is simple, yet perfect in its real life application. Graham states don’t get carried away with emotions; you should understand the market and grab the real time opportunities.
In the book intelligent investor, Graham has specifically written for layman who wants to grow his wealth slowly and steadily with a proper understanding of the market conditions. He believes that lay investors can achieve in an efficient way with minimum risk.
Graham has explained the concept- margin of safety’, and has stated it as very important for investors.
According to him it’s the secret to sound investment. I like this book because, because it doesn’t give you much formulas for security analysis, but it lays the foundation for laymen by giving a sound approach to investment, written with common sense and simplicity.