When Warren Buffett comments about The Intelligent Investor book as “The best book on investing ever written,” I don’t think I should share a review. So, instead, I will share my views about the book.
Right Stock at Right Price for Right Time
Have you ever invested in a stock on someone's advice to make profit and then has to wait for months, maybe years, to recover capital? Not anymore.
I don’t think I will share a review of the book The Intelligent Investor. The fact of the matter is, I won’t be able to justify a review.
So, instead, I will share my views about the book and why every Indian retail investor should read this book at least once. However, if you want to be an intelligent investor, it is a book you should read once every few years.
I have read it more than once, and I can say there is so much more to learn each time I read it.
My Views of the Book – The Intelligent Investor
When Warren Buffett recommends reading this book to investors, it has to be an excellent book.
There is so much wisdom for any investor; it is one of the must-read books.
But one must understand, the book is not all about stock picking, but it is more about risk management through asset allocation and diversification along with having a margin of safety in your investment.
How essential is it to invest with a margin of safety? How you should buy from optimist of Mr. Market and sell it to the pessimist of Mr. Market.
The return from the market is not a factor of how much risk you take, but it is a factor of how much effort an investor has put in to study the investment.
The rate of return sought should be dependent, rather, on the amount of intelligent effort the investor is willing and able to bring to bear on his task.
This is important.
If you aren’t able to work your way to understand the minute business details, it is tough for an investor to be intelligently investing.
Some Myth Bursts As We Read the Book
Are we an Investor?
We Indian retail investors know – one who invests for the long-term is an investor. I see people like to term six month long investors as well.
The book will clarify who is an investor and who is not.
An investor is the one who invests based on understanding the underlying business and nothing else.
It isn’t about investing based on PE ratio of the peers or a factor of how many months or years you remain invested. I share a similar view in my article on fundamental analysis as well.
If you aren’t investing by understanding the underlying business, you are a long-term speculator as Benjamin Graham likes to put it.
Invest for the Future
The other concept we have among investor is, we are considering to invest in companies that are doing good.
Benjamin Graham has a view of not using past performance to judge the companies future potential.
The chances are, the past performance may be tough to replicate in the future.
Investing in the market is all about investing for the future. Past is gone. So always consider investing based on future prospects and growth.
Always buy stocks which are available at a valuation below their intrinsic value.
Note, it is not below the price to earnings ratio of the peers.
So, if the value of the company is cheaper than the cash it can generate, it is the best possible investment.
Don’t try to time the market but remain invested.
At times, the market doesn’t get back to rewarding the earnings right when you thought it should.
Be patient and stay put. If you consider the investment still has the same value as the initial investment, the price movement is immaterial.
So many Earnings Per Share
Earnings per share have an entire chapter to let you understand the concept of it, but the example is from the ALCOA company of the US from 1970.
Though quite old, it seems still relevant.
We have so many EPS to consider like Basic EPS, diluted EPS, so on and so forth.
It is one chapter where the EPS will help you understand the intrinsic value. Again, we use the PE ratio, but what is more important is the earning per share.
Margin of Safety
The best part I like about the book is, it has a rule that you should not be losing. When you have the margin of safety, it is better to have a significant margin of safety, so you don’t lose a single penny of your investment.
We understand it is about winning more than loosing as investors but this book take that out of the equation of making a loss. It is all about investing right to make sure you are always winning.
Table of Content
Let me the table of content for you. This book doesn’t have many sub-headings within chapters.
So be prepared to read the chapters in a flow.
- Investment versus Speculation: Results to Be Expected by the Intelligent Investor
- The Investor and Inflation
- A Century of Stock-Market History: The Level of Stock Prices in Early 1972
- General Portfolio Policy: The Defensive Investor
- The Defensive Investor and Common Stocks
- Portfolio Policy for the Enterprising Investor: Negative Approach
- Portfolio Policy for the Enterprising Investor: The Positive Side
- The Investor and Market Fluctuations
- Investing in Investment Funds
- The Investor and His Advisers
- Security Analysis for the Lay Investor: General Approach
- Things to Consider About Per-Share Earnings
- A Comparison of Four Listed Companies
- Stock Selection for the Defensive Investor
- Stock Selection for the Enterprising Investor
- Convertible Issues and Warrants
- Four Extremely Instructive Case Histories
- A Comparison of Eight Pairs of Companies
- Shareholders and Management: Dividend Policy
- “Margin of Safety” as the Central Concept
Of course, it is a must-read book, and it will help you for sure to answer all your queries on selecting the right investment opportunities.
- What should be the return on our investment and how to beat the inflation investing in equity.
- How investing in bonds and FD can’t even beat inflation.
- How aggressive should your portfolio be? Should it have bonds and what percentage of the bond should be part of your portfolio?
- Why should we invest over time and intelligently? If not in stocks, then go with index funds.
- The do’s and don’ts of an aggressive investor.
Without much of ado, go ahead and check out the book on Amazon India.