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The Intelligent Investor: Timeless Wisdom for Steady Wealth Building

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By Arun Dahal Khatri

"The Intelligent Investor," a classic investment book by  Benjamin Graham, first published in 1949 and re-published in 2005 with a foreword by John Bogle, remains a timeless classic in investing. Graham's writing style, though old-fashioned, exudes a sense of comfort and wisdom akin to a grandfather sharing valuable experiences. The book targets lay investors rather than speculators, aiming to equip them with a sound approach to growing their wealth steadily. Graham emphasizes that achieving satisfactory investment results is achievable for most people, but obtaining superior results is much more complex. He discourages the pursuit of beating the market, arguing that attempting to do so is futile since the collective effort of stock market experts only cancels each other out. Instead, Graham advocates for a passive investment strategy of buying and holding a representative portfolio, yielding returns comparable to market averages.

The author challenges the common belief that one should sell a stock if dissatisfied with the management. He believes this does not improve the situation and merely transfers ownership without addressing underlying issues. Graham emphasizes the importance of investors taking responsibility as business owners and not relinquishing their rights to management. A central principle in Graham's philosophy is the concept of a "margin of safety." He advises investors to buy stocks at prices lower than their appraised value and advocates for diversification to reduce risk. Graham contends that the money in investing is made through long-term ownership, receiving interest and dividends, and benefiting from the appreciation of securities over time.

The book does not delve into complex formulas for security analysis, as Graham points readers to his earlier work, "Security Analysis," for more in-depth analysis. Instead, "The Intelligent Investor" lays a solid foundation for laymen, presenting a straightforward and common-sense approach to investment."The Intelligent Investor" is a guiding beacon for investors seeking to navigate the financial markets. Its enduring wisdom and practical advice make it a valuable read for anyone interested in building wealth steadily and responsibly. By imparting timeless principles, Graham leaves readers with the tools to make informed and rational investment decisions, setting them on a path to financial success.


7 Principles We Need to Understand From The Intelligent Investor


  1. Emphasize Capital Preservation: Your primary objective should be to safeguard your capital. Understand the difference between "investing" and "speculating." Most so-called investors are speculators who take unnecessary risks. Minimize speculation and avoid trying to get rich quickly, as it often leads to losses.
  2. Reasonable Valuation Metrics: When considering stocks, focus on suitable valuation metrics. A trailing price-to-earnings ratio (P/E) of less than 15 and a price-to-book ratio (P/B) multiplied by a tangible book value of 22.5 or less can serve as valuable benchmarks.
  3. EPS Growth as a Measure of Stability: A stable and sound business model is characterized by consistent earnings-per-share (EPS) growth. Look for companies with EPS growth exceeding 30% cumulatively over the past ten years. This indicator can signal a healthy and growing company.
  4. Financial Security: Pay attention to a company's financial health. A current ratio greater than 2 signifies that the company is financially secure and can meet its short-term obligations.
  5. Preference for Dividends: Strongly favor companies that offer dividends, especially those with a history of consistent dividend growth. Dividends provide a tangible return on your investment and indicate that the company is financially stable enough to distribute profits to shareholders.
  6. Avoiding Companies with Negative Earnings: Steer clear of companies that have reported negative earnings-per-share in the last three years. Consistent losses can be a warning sign of underlying issues in the business.
  7. Mastering Investor Psychology: Benjamin Graham believed mastering investor psychology was the key to successful investing. Instead of fearing market crashes, view them as exciting opportunities to buy high-quality stocks at discounted prices. Maintaining a long-term perspective and staying disciplined during market fluctuations is essential for investment success.

Always remember that  Graham's approach emphasizes prudence, patience, and a focus on fundamental factors. By prioritizing capital preservation, seeking reasonably valued stocks with solid growth potential and financial health, and maintaining a disciplined mindset, you can build a solid foundation for successful investing.