Benjamin Graham, the author of “The Intelligent Investor”, is heralded as one of the greatest inventors to ever live. After reading this monster of a book, I can see why. Mr. Graham does a great job of explaining a mindset for the potential investor to mold into. This book is not so much about technical analysis as it is about putting emotional controls in place. The stock market can be an emotional rollercoaster. After being invested in the markets for about 1.5 years, I can say that it can play heavily on your nerves. I entered at the end of a bull market (the market was really high) and then the pandemic hit in March 2020, causing it to become a bear market (the market is really low). After this, the market went back into a bull market. Whew! It was a crazy ride, luckily I had invested a lot of time learning to control my emotions. I sold only a couple of stinkers (bad stocks) and kept investing the whole way through. After all of this, I thought it prudent to go back and read one of the best books on investing ever written. I personally love to jump into things first, try as much as I can, and then get some formal education on it. That’s how I learn best. However, you may want to read this book first, before you invest. I was able to relate to much of the information because I was already invested in the market for about $35,000. This book does give some technical analysis procedures for valuing stocks, however, to go more in-depth, you would have to read a book called “Security Analysis”. With that, let’s get into my 5 Takeaways.
1) Learn what kind of investor you are. The two kinds of investors Graham discusses are the Defensive Investor and the Aggressive Investor. In today’s terms, these boil down into a passive investor and an active investor. A passive investor invests diligently in index funds that cover the board markets. Active investors are looking for the next “hot stock”. Active investors usually read more about the markets and invest more time into news and media.
2) Most investors (90%) are better served being defensive (or passive) investors. Index funds are created to give you the same results as the markets. Most people, including huge Wall Street firms, cannot beat the market for over even a short period of time (3-5 years). Most people that dollar-cost average into index funds will create great wealth over time. I personally use a mostly passive approach but like to add dividend-paying stocks to help supplement my dividend yield.
3) Dollar Cost Averaging is the best technique for defensive investors. By putting a set amount of money into the stock market monthly, you are dollar-cost averaging. This method of investing keeps you from worrying about market fluctuations. Over time you will slowly start to get ahead of the market. When the market drops, you will buy more. When the market rises, you will buy less. This method has proven to be near infallible over long periods of time. In today’s smartphone world, it is even easier to dollar cost average.
4) Know the difference between being an investor or being a speculator. We want to be investors. Investors research companies to learn if they have great value. Investors buy for the long term. Speculators look at the stock price and estimate if the price will go up even higher. They are playing the game to see if someone will pay more for the stock than they did. Graham states that an investor can allow a small portion of their portfolio for speculation, no more than 10%. That way they can participate in some of the Wall Street hype games. But we need to understand that it is just a game.
5) Use the Stock/Bond Portfolio. Graham is a huge proponent of the stock/bond portfolio. This means that roughly 50% of your investments are in stocks and the other 50% are in bonds. You can allocate it more or less in any direction, but no more than a 75/25 split in favor of either. This will lower the overall return of your portfolio, however, it will keep you from panic selling. I can safely say that when the market had a huge downturn in March 2020, my savings and bonds were amazing. They just stayed still while all my stock market securities went down over 50%. It’s a good feeling to have something that is not attached to the stock market. Ensure that you have a well-balanced portfolio, it will help keep your sanity in market downturns.
This book is a tough read. I can label it as “dry”. It was written in the 1940s and updated in the 1970s. There is some commentary from the 2000s which is a little more vibrant, however, the book is still a little uneventful. It is not a “page-turner” but the information will save you lots of money and help you become a great investor. Becoming a great investor will not only help you achieve financial freedom but also your children as well. So, it is worth it to plow through the book. Remember, even if you get stuck, skim over some parts. The book can be read and reread as many times as necessary. I know as I get more into the stock market, I will come back and reread the book with a different set of eyes. This book is a must-read for passive investors and active investors. Personally, I would play around in the market with a little money first (say $100), just to get a handle on things. I would read websites like Seeknigalpha.com as well. This will help you get some words into your vocabulary. This book has more meaning if you can relate to the up and downs of the market. That’s just my opinion. Again, this book is a must-read for any enterprising investor.
This link is to a physical product. The link above is to the digital book. Sorry. I get no credit for digital product links.
Follow us on our Facebook Page:
https://www.facebook.com/kingmarine1775
Join our Facebook group at:
https://www.facebook.com/groups/231490384820780
Listen and Learn on YouTube:
https://www.youtube.com/channel/UCfoq4ILMCmesrmO_HXE53Jg/
Follow us on Pinterest at:
Disclosure: I am not a financial advisor or money manager, and any knowledge is given as guidance and not direct actionable investment advice. I am an Amazon Affiliate. Please research any investment vehicles that are being considered. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Leave a Reply