Paul Adams - Summary of The Intelligent Investor: The Definitive Book on Value Investing

Summary

of

The Intelligent Investor

Benjamin Graham

Conversation Starters

By Paul Adams

Book Habits

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EVERY GOOD BOOK CONTAINS A WORLD FAR DEEPER THAN the surface of its pages. Questions herein are designed to bring us beneath the surface of the page and invite us into the world that lives on. These questions can be used to:

• Foster a deeper understanding of the book
• Promote an atmosphere of discussion for groups
• Assist in the study of the book, either individually or corporately
• Explore unseen realms of the book as never seen before

Introducing The Intelligent Investor

T

he Intelligent Investor: The Definitive Book on Value Investing is a book written by Benjamin Graham. Originally published in 1949, the 2003 revised edition is printed by HarperBusiness Essentials. It is the acknowledged bible of stock market investors. Graham is considered the twentieth centurys greatest investment guru, having inspired many investors worldwide on the proper way to financial wisdom. The book includes commentaries by Jason Zweig based on his experience as a financial journalist and editor of Money. The commentaries are meant to update Graham's writing to fit the modern audience's understanding of the investment market. In the original book, Graham provided examples that were appropriate to his audience in the 1950s through 1970s. The book is considered by its publishers as a "vital and indispensable" and "is the most important book" one can read in order to achieve one's financial dreams. Graham identifies the purpose of the book by saying it is written for laymen who need guidance with regard to investment policy. Principles and attitudes regarding investments are explained. He cites historical patterns that have happened in financial markets in the past decades and says the wise investor should know how the different kinds of bonds and stocks actually behaved in the past. He quotes significant thinkers and philosophers to stress his points. An example is Santayana who is quoted as saying "Those who do not remember the past are condemned to repeat it." Graham makes it clear to readers that the book is for investors and not for speculators. It is not a book that gives instructions on how to become a millionaire. Graham reminds the reader that his book has been updated several times since it was first released in 1949.

Zweig introduces Graham at the start of the book, giving a short biography of the man, from a life of comfort and luxury as a child, to poverty and ruin after his father's death, and to his financial success later in life. His commentaries give Grahams text a different perspective, further enlightening the reader. He starts his commentary on the introduction by quoting Henry David Thoreau. Then he specifically asks the reader if he is an intelligent investor, a question which he eventually answers by defining what the term means. Zweig says "high IQ and higher education are not enough to make an investor intelligent," repeating Grahams opinion on the subject. He also provides a lot of footnotes to clarify Grahams points and ideas. The book features anecdotes about investors. Sir Isaac Newton was known to have bought shares in the South Sea Company only to lose what amounts to $3 million today. Newton said he could "calculate the motions of the heavenly bodies, but not the madness of people." Zweig updates Graham's writing by citing internet and technology stocks as examples. He cites particular companies and portfolio managers who boasted about the certainty of earning big from internet shares in the years 1999 to 2000. They ignored Graham's advice that " Obvious prospects for physical growth in a business do not translate into obvious profits for investors."

Graham writes the book like a textbook. He starts every chapter by telling the reader what to expect in the chapter. In chapter one which discusses "investment versus speculation", he gives a historical background of his subject matter, citing dates, the years when market decline happened, and citing what financial journals had to say about significant financial and investor events. Readers admire the humility that is revealed through his writing. His classical education is apparent in his words, as well as his intelligence and humor. Though it has a lot of technical information, readers appreciate the big ideas presented in a simple and straightforward manner. The Preface is written by finance genius Warren E. Buffet who says it is "the best book on investing ever written." He says Graham was not just an author or a teacher to him. He was one of the most influential people in Buffets life. He had powerful ideas which he delivered in his gentle manner, according to Buffet. Buffet further says that Graham's principles "remain sound...and better understood in the wake of financial storms that demolished flimsier intellectual structures." Buffet admired his intellectual breadth and admits not having met anybody yet who had a mind of similar quality.

The Intelligent Investo r has sold more than a million copies since it was first published several decades ago. Fortune recommends it to readers who intend to read just one book about investing in their lifetime. Barrons says Grahams teachings will lead to a more fair market.