Description
by
Harris Kristina (Author)
The book has praised as the bible for value investors fully lives up to the tribute.
The Principles for The Intelligent Investors
is a timeless classic packed with principles that are as relevant today. The book contains such a wide array of important lessons.
The mindset to ride-out market swings – Graham teaches us that a healthy attitude towards and understanding of market swings characterises the intelligent investor. The investor should know that market swings are inevitable, which is why a strong mentality is a must in order to resist jumping into emotionally-driven actions. The intelligent investor should base his investment decisions on analysis and sound principles while staying relatively immune to optimism and pessimism in the market place. The obvious answer – which your home banking would agree on – is yes, you are poorer on paper. Market is just confused. Now would be the time to buy, not sell. Graham explains it somewhat along the lines of: “One has to be psychologically prepared to be a real investor, not just a speculator disguised as an investor.” He underscores the importance of basing your investment decisions on pricing rather than timing. Timing concerns speculation in the market’s direction. Pricing revolves around determining a security’s intrinsic value, and then insisting on buying only when the market price is substantially below said value.
Insist on intercepting bargains – The previous section serves as a stepping-stone to discuss the corner stone of the value investing universe: the margin of safety principle. The famous “50 cent for a dollar”-mantra illustrates the act of acquiring intrinsic value at a discount. The methods to determine intrinsic value are many, e.g. Ben’s net-nets (read Value Investing Made Easy), a Discounted Cash Flow analysis (read Why are we so clueless about the stock market?), determination of reproduction value (read Value Investing: From Graham to Buffett and Beyond) or other approaches (read The Manual of Ideas). The analyst should determine which method is most suitable for a given opportunity, but the same principle is recurring throughout: insist on buying only when there’s a sufficient span between your estimate of intrinsic value and price. Ben recommends a minimum margin of safety of 30%. Insisting on never buying if a margin of safety isn’t present protects the investor from errors in the analysis and unforeseen incidents that affect the company’s outlook. Mix this principle with a portfolio of stable and relatively stable businesses, and you’re secured a better night’s sleep once market prices go south.
These two chapters are but a tiny fraction of an inexhaustible well of wise words. If you wish to venture into the value investing universe, this masterpiece is a must-read. Besides the two chapters touched upon here, the book also covers the distinction between stocks earnings power and market prices; how to determine markets’ central value; and tons of other best bets.
Number of Pages: 110Dimensions: 0.26 x 7.99 x 5.24 INPublication Date: January 05, 2021
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