The Intelligent Investor by Benjamin Graham PDF

Contents
 
Epigraph
Preface to the Fourth Edition, by Warren E. Buffett
A Note About Benjamin Graham, by Jason Zweig
Introduction: What This Book Expects to Accomplish
Commentary on the Introduction
1. Investment versus Speculation: Results to Be Expected by the Intelligent
Investor
Commentary on Chapter 1
2. The Investor and Inflation
Commentary on Chapter 2
3. A Century of Stock-Market History: The Level of Stock Prices in Early
1972
Commentary on Chapter 3
4. General Portfolio Policy: The Defensive Investor
Commentary on Chapter 4
5. The Defensive Investor and Common Stocks
Commentary on Chapter 5
6. Portfolio Policy for the Enterprising Investor: Negative Approach

Preface to the Fourth Edition,

by Warren E. Buffett

I read the first edition of this book early in 1950, when I was nineteen. I

thought then that it was by far the best book about investing ever written. I

still think it is.

To invest successfully over a lifetime does not require a stratospheric

IQ, unusual business insights, or inside information. What’s needed is a

sound intellectual framework for making decisions and the ability to keep

emotions from corroding that framework. This book precisely and clearly

prescribes the proper framework. You must supply the emotional discipline.

If you follow the behavioral and business principles that Graham

advocates—and if you pay special attention to the invaluable advice in

Chapters 8 and 20—you will not get a poor result from your investments.

(That represents more of an accomplishment than you might think.)

Whether you achieve outstanding results will depend on the effort and

intellect you apply to your investments, as well as on the amplitudes of

stock-market folly that prevail during your investing career. The sillier the

market’s behavior, the greater the opportunity for the business-like investor.

Follow Graham and you will profit from folly rather than participate in it.

To me, Ben Graham was far more than an author or a teacher. More

than any other man except my father, he influenced my life. Shortly after

Ben’s death in 1976, I wrote the following short remembrance about him in

Overview

The Intelligent Investor by Benjamin Graham

The Intelligent Investor by Benjamin Graham is a foundational text on value investing, emphasizing the importance of a disciplined approach to investing. This book outlines key principles such as the difference between investing and speculation, the impact of inflation, and strategies for both defensive and enterprising investors. Graham's insights are complemented by commentary from Warren E. Buffett, who praises the book as essential for anyone looking to invest wisely. The fourth edition includes updated insights and analysis relevant to today's market conditions, making it a valuable resource for both novice and experienced investors. Key Points Explains the fundamental principles of value investing and the importance of a long-term perspective. Covers strategies for bo…

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Figures

And on the NASDAQ exchange, turnover hit warp speed, as Figure 1-1

In June 2000, O’Shaughnessy moved closer to his own “long-term

What would be the implications of such an advance? It would eat up, in

The stock market has considered that the public-utility enterprises have

Chart I, presented by courtesy of Standard & Poor’s, depicts the market

The record of price movements should be supplemented by

We then approached the task of appraising the November 1964 levels of

Our final judgment is that the adverse change in the bond-yield/stock-

Sources: http://aida.econ.yale.edu/˜shiller/data/ie_data.htm; Jack Wilson and Charles Jones, “An

From the end of 1999 through the end of 2002, the S & P 500-stock average fell relentlessly. But if

Researchers Brad Barber and Terrance Odean divided thousands of traders

After going up like a bottle rocket on that first day of trading, VA Linux

The Intelligent Investor by Benjamin Graham — But is it not true, the reader may ask, that the really big fortunes from

2 Average Annual Percentage Gain or Loss on Test Issues,

4 Profit Experience of Undervalued Stocks, 1957–1959

If it is virtually impossible to make worthwhile predictions about the

1 offers a sampling of how the stinkers of 1999 became the stars of

Some interesting facts can be gathered from this table. First, we find

The portfolio of Manhattan Fund at the end of 1969 was unorthodox to

3 Certain Data on Closed-End Funds, Mutual Funds, and S

The fact that a few closed-end funds are selling at

Your chances of selecting the top-performing funds of the future on the

1 Recommended Minimum “Coverage” for Bonds and

On Wall Street a great deal is constantly said on this

We should have added a caution somewhat as follows: The valuations

Source: Micron Technology’s financial reports.

The Intelligent Investor by Benjamin Graham — Figure 40

The Intelligent Investor by Benjamin Graham — Figure 41

If, however, we wish to apply the same seven criteria to each individual

In Table 14-4 we present a résumé of the 15 issues in the Dow Jones

The Intelligent Investor by Benjamin Graham — and this implies adequate offsets to inflated costs. While the process of

For the defensive investor the central appeal of the public-utility stocks

6 Development of Prices and Price/Earnings Ratios for

7 Relative Price Movements of Stocks of Various

The Intelligent Investor by Benjamin Graham — Figure 49

1 A Sample Portfolio of Low-Multiplier Industrial

2 Stocks of Prominent Companies Selling at or Below Net-

A comparable presentation is difficult to make for the years 1967–1970,

(Standard & Poor’s composite index of 500 common stocks declined 11.3%.)

: A typical example was presented by Studebaker-Worthington

Note that, after special charges, the effect of the company’s calculation is to increase the earnings per

1. The company’s expansion period was not without an interruption. In

In Table 18-1B we present the situation about eight years later. The

picture, and the price fell to 9½. When the report for March 1970 appeared

: Our clear-cut view would be that both companies were

The story is told in Table 18-5. Here we find Flavors with a sensational

These figures appear the more anomalous when comparison is made

8B. Ten-Year Price and Earnings Record of Whiting and

The history of the two companies throws an interesting light on the

In Table 18-9 we provide some data on the price fluctuations of the

In studying the stock list for the material in this chapter, we were

Note: Total returns for calendar year; net earnings for fiscal year.

Source: Eugene Fama and Kenneth French, “Disappearing Dividends,”

The Intelligent Investor by Benjamin Graham — Figure 85

The Intelligent Investor by Benjamin Graham — Figure 86

The Intelligent Investor by Benjamin Graham — Figure 87

The Intelligent Investor by Benjamin Graham — Figure 88

2. Important Rules Concerning Taxability of Investment Income and

The Intelligent Investor by Benjamin Graham — When Phaëthon insisted on driving the chariot of the Sun, his father, the

: It is virtually certain that the many technological companies

FAQs

What is the main difference between investment and speculation according to Graham?

In 'The Intelligent Investor,' Benjamin Graham emphasizes that investment involves thorough analysis and a focus on long-term value, while speculation is characterized by a lack of analysis and a focus on short-term price movements. Investors should expect reasonable returns based on the underlying value of their assets, whereas speculators often chase trends and may face significant risks without a solid foundation.

What does Benjamin Graham mean by 'margin of safety'?

The 'margin of safety' is a key concept in Graham's investment philosophy, which refers to the principle of buying securities at a price significantly below their intrinsic value. This strategy minimizes the risk of loss by providing a buffer against errors in judgment or unforeseen market downturns. Graham argues that this approach is essential for reducing the odds of being wrong in investment decisions.

How does Graham suggest investors should react to market fluctuations?

Graham advises investors to maintain a disciplined and rational approach during market fluctuations. He believes that the market behaves like a pendulum, swinging between extremes of optimism and pessimism. Investors should sell to optimists when prices are high and buy from pessimists when prices are low, thus taking advantage of market irrationality rather than being swayed by it.

What role does emotional discipline play in successful investing according to Graham?

Emotional discipline is crucial for successful investing, as highlighted by Graham. He asserts that investors must develop the ability to keep their emotions in check to adhere to their investment framework. This discipline helps prevent impulsive decisions driven by market hysteria and allows investors to stick to their strategies, ultimately leading to better long-term results.

What historical perspective does Graham provide on stock market behavior?

Graham provides a historical perspective on stock market behavior by discussing how cycles of bull and bear markets have repeated over time. He emphasizes that understanding these historical patterns can help investors anticipate future market movements and make informed decisions. His analysis of stock market history serves as a reminder that market conditions are often cyclical and that patience is key.

What is the significance of chapters 8 and 20 in 'The Intelligent Investor'?

Chapters 8 and 20 of 'The Intelligent Investor' are particularly significant as they encapsulate Graham's core principles of investing. Chapter 8 discusses the importance of market fluctuations and how investors should take advantage of them, while Chapter 20 focuses on the concept of 'the investor and inflation,' highlighting how inflation impacts investment decisions. Both chapters provide invaluable insights that are essential for successful investing.

How does Graham define a stock in 'The Intelligent Investor'?

In 'The Intelligent Investor,' Graham defines a stock not merely as a ticker symbol or a price on a screen, but as an ownership interest in a real business. He emphasizes that the true value of a stock is based on the underlying business's performance and fundamentals, rather than its market price. This perspective encourages investors to focus on the intrinsic value of their investments.