If you had the chance to learn from Warren Buffet’s teacher about investing, would you take it? The Intelligent Investor is just that – a book written by Benjamin Graham (here’s Warren explaining). When you search for “Investing” on Amazon.com this is the first result that comes up. It’s a best seller, has 4 1/2 out of 5 stars, and thousands of good reviews. You’ve heard of Warren Buffet right? He’s that super-rich guy that got that way by investing. So given that information, how can you afford to not read this book, really? Here’s what I got from it.
(Some of) My Bias
I’ve read some simple investment books before and I’m not particularly interested in investing. This post is not a summary of the book, it’s my personal opinion on it.
Investors vs Speculators
Investors look for value in a company after thorough research and analysis. Speculators use market fluctuations to make money. So an investor will invest in a company because, after thorough research, he or she thinks it’s a good company and thus invests in the “value” of that company. A speculator bets on what’s likely to happen with the market or with a particular company based on current events (for example). If you’ve ever had the thought, “Hey, Google is popular, maybe I should invest in Google!” then you’re speculating.
Inflation
It’ll get ya! Watch out! Inflation is the boogey man! This is pretty basic really. If you put your $1,000 in a savings account or under your mattress for 5 years, then your $1,000 will have magically transformed into about $862. Not literally of course, but because inflation makes prices rise in general your $1,000 won’t buy you as much as it used to. So any reasonable investment first has to beat inflation, otherwise it’s useless.
Stock Market History
“From year X to year Y the stock market did such and such, from year Y to year Z it did so and so. On this occasion it would have been better to do this and on that occasion it would have been better to do that.” Yep, the book talked about that. I don’t remember much of it. My eyes glazed over. It went over what would have been the best investment strategies in past situations and why the advice given in the book is sound advice. I believe it.
Passive vs Active Investors
It outlines the difference between a passive and an active investor. (It calls these two types Defensive and Enterprising.) Do you want to actively research and investigate companies and stocks to maximize your return (active)? If not, then perhaps you’d just like to invest and be assured that your money will grow at a reasonable rate (passive).
Beating the Market
Excited to learn how to beat the market? So is everyone else. Very few can do so consistently though, of course. Think about it, if a significant number of people could “beat the market,” then “the market” would represent those people. Then those people, by definition, would have to do better than they’ve already done. It’s logically unsound and impossible by definition.
What about financial advisors, investment gurus, and fund managers? Some of these people have spent years studying investing and investment strategies. So why not just do what they advise, or use a managed fund? Because that doesn’t work! Managed funds are run by people and they do not regularly outperform the market! Here’s a quote from the audio book.
If you the listener expect to get rich over the years by following some system or leadership in market forecasting, you must be expecting to do what countless others are aiming at and to be able to do it better than your numerous competitors in the market. There is no basis either in logic or in experience for assuming that any typical or average investor can anticipate market movements more successfully than the general public, of which he is himself a part.
My take-away from this is that if you want to be an active investor, you probably shouldn’t. People have been trying to beat the market for years and most people fail. A low-cost index fund is your best bet.
General How To Advice
Some general advice is given on how to tell the difference between a good and a bad investment. It gives some tips on “value investing” (how to value a company, and therefore its stock). This is the “meat” of the book, I suppose, and I can’t summarize it here because it’s too long and boring for my tastes. You’ll just have to read the book if this interests you!
Quotes I Love
It is easy for us to tell you not to speculate. The hard thing will be for you to follow this advice. […] If you want to speculate, do so with your eyes open, knowing that you will probably lose money in the end. […]
Don’t speculate, silly!
The man who holds a mortgage on a building might have to take a substantial loss if he were forced to sell it at an unfavorable time. That element is not taken into account when judging the safety or risk of ordinary real estate mortgages; the only criteria being the certainty of punctual payments. In the same way the risk attached to an ordinary commercial business is measured by the chance of [it] losing money, not by what would happen if the owner were forced to sell. It is our conviction that the bonafide investor does not lose money merely because the market price of his holdings declines. Hence the fact that a decline may occur does not mean that he is running a true risk of loss. If a group of well selected common stock investments shows a satisfactory overall return as measured through a fair number of years then this group investment has proved to be safe. During that period its market value is bound to fluctuate and as likely as not it will sell for a while under the buyer’s cost.
This is a concise explanation of value investing. When you invest in stock you are investing in a company. As long as the company has value then the stock will have value, regardless of market fluctuations.
Summary
Overall… So, so boring. Lots of numbers and statistics and technical talk. I tried the unabridged version at first. HUGE MISTAKE. I finally gave up after 5 hours of listening (I listen to books on Audible) and ordered the reasonably lengthed abridged version. The abridged version is 2 hours and 45 minutes and the unabridged version is 17 hours and 48 minutes!
The advice is good, the warnings are good, the information is sound, and overall I couldn’t ask for more content from just one book. I can ask for the same content though, wrapped in a more entertaining package.