The Intelligent Investor (Benjamin Graham)

 

Some investors may recommend you to read The Intelligent Investor by Benjamin Graham to kickstart your investment journey. Their underlying principles of investing from the book is timeless, despite the trends that may seem to make value investing outdated.

Value investing is focused on generating steady, long-term profits by ignoring the current market and picking companies with high intrinsic value. Benjamin Graham is an investor who flourished after the financial crash of 1929. After making some mistakes, he shares what it takes to become a successful investor in any environment.

Lessons

1. Analyze for the long term, protect yourself from losses, and don’t chase after crazy profits.
2. Don't succumb to the emotional temperament from Mr. Market. He can be irrational in the short term.
3. Stick to plan when you make investments. Such as using dollar cost averaging, margin of safety to limit your downside etc.

Dollar cost averaging: set a fixed budget you’re going to invest every month or quarter, and then invest that into the stocks you’ve previously picked – no matter the price.

Principles

1. An intelligent investor always analyzes the long-term evolution and management principles of a company before investing.
2. They always protect themselves from losses by diversifying investments.
3. Intelligent investors never look for crazy profits, but focus on safe and steady returns.

A famous quote by Warren Buffet is about his 2 rules for investing.

Rule No. 1: Never lose money.

Rule No. 2: Never forget Rule No. 1.

You don't have to many many good decisions. You just have to know what to avoid.

Be an Intelligent Investor – Understand the difference between Investment and Speculation

The intelligent investor is patient, disciplined and eager to learn. They are also able to harness their emotions and think for themselves. He can differentiate between investing and speculating

Investing

• Thorough analysis of an investment by determining the risk/return characteristics of the asset. 
• An investment has the ability to promise safety of principle and an adequate return. 
• Acquire and hold suitable securities at suitable prices. 
• Only pays attention to the current stock price when it suits him.

Investing is not about beating others at their game, it's about controlling yourself at your own game. Most investors fail because they pay too much attention to what the stock market is doing currently.

Before exiting a stock position, he will check whether the value of the company's underlying businesses has changed before reacting. He will not exit or enter the market based on the share price movement. The investor who permits himself to be worried by unjustified market declines in his holdings is essentially transforming his basic advantage into a basic disadvantage. 

Speculation

• Taking investment decisions that are not made on a foundation of research and analysis 
• Can consequently lead to a high probability of loss of capital. 

Investors should limit their allocation to speculative positions (also known as "mad money account") to no more than 10% of the investment funds. Never mingle the money in the speculative account with the money in the investment account.