The Intelligent Investor
The smart investor is one of the most important books in the world of investment and one of the basic for a long-term investor who wants to train in value investing.
Benjamin Graham (1894-1976) was, although British economist and U.S. investor of birth, specializing in long-term investment. He is considered the creator of value investing.
In his first book, Security Analysis (Classics Deusto Investment and Finance), laid the foundation stone in the philosophy of value investing, but it was The Intelligent Investor book that changed the way of thinking and investing for many people and the book which remains a reference for value investors.
Knowledge and ideas of Benjamin Graham were so attractive to investors until the legendary Warren Buffett offered to work for free for him just to learn their way of investment. No doubt that Buffett took a right at the time of taking a teacher Graham decision.
The Intelligent Investor Book
Throughout the book, Benjamin Graham reels off all key concepts and necessary for long-term investing in the stock market following a value investing style.
Graham explains that the "smart" in the title does not refer to a rogue but merely prudent investor or an investor who is not seeking a quick profit but have a vision of long-term investment whose main objective is to preserve capital and is safe and secure with their investment principles as opposed to a market that is carried away by their emotions. At all times Graham focuses on long-term investment. When investing in value is necessary for long-term investment, as discussed throughout the book, this investment style is to buy shares below their true value. A short-term action may underestimate Stock Exchange, but Graham believes that over the long term will be the price that corresponds to its value and therefore the form of investment of Graham requires patience.
Benjamin Graham was always very clear about the difference between a speculator and investor. An investor is a person who is considered a business owner and looking for it mainly benefits. Meanwhile, the speculator seeks quick profit for yourself no matter what kind of company puts their money. In addition, Graham believes that while the speculator has a chance to make money speculating in the case of wrong results can be disastrous.
The intelligent speculator can not exist according to Graham and he warns of the danger of believing an investor and, in practice, be a speculator. The purchase of a quick action to avoid missing a great opportunity is, according to Graham, one speculative attitude.
Throughout the book you can see that many of the ideas we hear in Warren Buffett are the same, at the time, explained Benjamin Graham in The Intelligent Investor. It could not be otherwise because the Buffett considers himself 85% Graham and 15% Fisher.
The Intelligent Investor
Another very idea of Benjamin Graham and Buffett repeats much is not trying to hit market movements. According to Graham, track market movements and speculators makes us the only reason an investor would do is to try to buy a stock that interests a discounted price in the case of being in a downward cycle.
Graham refers to Stock Exchange as Mr. Market manic depressive person changing mood and goes from one extreme to another unexpectedly. Due to the nature of Mr. Market, Graham thinks is best to take advantage of the mistakes it commits instead of trying to guess the moves it will.
Value Investing vs Growth
If the prospects for long-term growth are clear, Benjamin Graham thinks the price of the company and deducted these prospects, making it very expensive quote. Therefore, often dismiss these businesses precisely because the investment value of buying at low prices that do not reflect the real value of the company.
Investing in companies in which the expectations and predictions are very bad or are bored or ignored by the market business is one of the keys to value investing. When the market leave stock prices of companies that are not fashionable at knockdown prices is the time when a smart investor should pay attention.
For Benjamin Graham, due to market pressure either up or down, the key to making money in the on the stock exchange is not the time to buy or sell, but be disciplined enough to withstand this pressure, keep our actions, dividends receivable and wait for the market to discover the real value of the company to which it is undervalued.
Margin of Safety
Benjamin Graham in his book leaves us many concepts that remain today in key investment. One is the safety margin is basic in value investing.
The safety margin is the difference between the intrinsic value of a stock and the price of it. Sometimes, the market over-reacts and action values far below their real value; is the moment when the opportunity arises for a investor value.
A simpler example can be to understand the story. If a floor is capable of generating a rent of € 1,000 per month will have an intrinsic value for its ability to make profits. Surely, if the housing market is not fashionable because investors prefer to invest in shares of technology companies, we can find very cheap floor. If the floor has an intrinsic value of 150,000 euros thanks to its ability to generate rents and sells for 75,000 euros, it is clear that there is a margin of safety and would be a good investment value. In the case of shares, the concept is similar.
Throughout The Intelligent Investor Benjamin Graham details how to find undervalued safety margin and gives examples of companies of its time companies. In addition, the updated version can read Jason Zweig comparisons and examples closest in time, especially the dotcom bubble of 2000.
Benjamin Graham's book is full of concepts and ideas essential to understand the value investing. It is perhaps a somewhat dense and difficult book to read for those who have never read anything about the stock market or investment.
To Warren Buffett, buy The Intelligent Investor is the best investment you've made in your life and at all times has a flashback to Benjamin Graham. It is common to find quotes this in his letters to investors or in his talks and speeches.