Benjamin Graham's classic book, The Intelligent Investor: The Definitive Book on Value Investing (Collins Business; Revised edition July 8, 2003; 640 pp) was first published in 1949 and has since been read my millions of interested parties and declared the "best book on investing ever written" by Warren Buffett.Money senior editor Jason Zweig added extensive footnotes and commentary after each chapter to update the latest 1972 Graham version to today's marketplace and expand the book to a hefty 640 pages, while Buffett wrote the Preface in the newest 2003 version.
This book is a must read for all investors.
Graham offers no guarantees or quick get-rich schemes like so many other books, but rather professes the importance of long-term value investing with sound analytics and no emotions attached. His philosophy speaks to the importance of loss minimization as opposed to profit maximization and is certainly intended for investors as opposed to traders. Graham encourages investors to find bargains in companies relative to their current asset value by using sound research tools and criteria. He also espouses a fairly conservative (at least, by most current standards) approach to asset allocation of stocks and bonds (approaching 50/50 for most investors), and emphasizes that the investor's asset allocation plan must be stuck to in the long-term no matter what your emotions are telling you. In the long term, this approach has proven to produce larger gains and smaller losses in both bull and bear markets than the emotion driven investing approach of getting in and out of the market.
What's particularly amazing is that Graham's advice is still overwhelmingly applicable to today's market and investment vehicles. Zweig's commentaries following each chapter also prove to be informative bridges between Graham's theses and how they apply to current conditions. Whereas in Graham's day, low cost index funds were non-existent, now they are clearly abundant. Before his death in 1976, Graham highly recommended such funds.
Even though the pages are filled with information and reading all 640 pages might sound intimidating for a casual investor, the chapters are clearly organized and the writing is clear, easy-to-understand, and direct. For a brief summary of the most important points in the text, one can read just Chapter 8 (The Investor and Market Fluctuations), where Graham explains his concept of Mr. Market and Chapter 20 (Margin of Safety), where he speaks to the importance of leaving sufficient room to counteract misjudgements of a share's intrinsic value.
In the end, Graham argues that investors need not worry or be concerned with (or even bother to follow) the day-to-day fluctuations of the market as it is often illogical in its behavior. Rather, investors ought to seek to find solid companies that are underpriced, pay attention to the real-life performance of these companies, and be happy to accumulate dividends over a long period of time. Using this simple approach often leads to a significant outperformance of perhaps the more enthralling trading that many people partake in. At the very least, it minimizes the risk involved in investing and the possibility of stratospheric losses that occur occur when investing on emotion or day trading.
Rating: 5 out of 5 stars
