The Intelligent Investor
Encyclopedia
The Intelligent Investor by Benjamin Graham
, first published in 1949, is a widely acclaimed book on value investing
, an investment approach Graham began teaching at Columbia Business School
in 1928 and subsequently refined with David Dodd
. Famous investor Warren Buffett
described it as "by far the best book on investing ever written", a sentiment echoed by other Graham disciples such as Irving Kahn
and Walter Schloss
.
of a stock always (at least in most cases) reflects the fundamental value
of a company.
The idea of value investing is to buy stocks whose price is lower than their true value and then to hold those stocks until their price returns to the true value earning a return on the investment.
is that of Mr. Market, an obliging fellow who turns up every day at the share holder's door offering to buy or sell his share
s at a different price. Often, the price quoted by Mr. Market seems plausible, but sometimes it is ridiculous. The investor is free to either agree with his quoted price and trade with him, or ignore him completely. Mr. Market doesn't mind this, and will be back the following day to quote another price.
The point of this anecdote is that the investor should not regard the whims of Mr. Market as a determining factor in the value of the shares the investor owns. He should profit from market folly rather than participate in it. The investor is advised to concentrate on the real life performance of his companies and receiving dividends, rather than be too concerned with Mr. Market's often irrational behavior.
. Graham died in 1976. Commentaries and new footnotes were added to the fourth edition by Jason Zweig, and this new revision was published in 2003.
Benjamin Graham
Benjamin Graham was an American economist and professional investor. Graham is considered the first proponent of value investing, an investment approach he began teaching at Columbia Business School in 1928 and subsequently refined with David Dodd through various editions of their famous book...
, first published in 1949, is a widely acclaimed book on value investing
Value investing
Value investing is an investment paradigm that derives from the ideas on investment and speculation that Ben Graham and David Dodd began teaching at Columbia Business School in 1928 and subsequently developed in their 1934 text Security Analysis...
, an investment approach Graham began teaching at Columbia Business School
Columbia Business School
Columbia Business School is the business school of Columbia University in Manhattan, New York City. It was established in 1916 to provide business training and professional preparation for undergraduate and graduate Columbia University students...
in 1928 and subsequently refined with David Dodd
David Dodd
David LeFevre Dodd was an American educator, financial analyst, author, economist, professional investor, and in his student years, a of, and as a postgraduate, close colleague of Benjamin Graham at Columbia Business School.The Wall Street Crash of 1929 almost wiped out Graham, who had started...
. Famous investor Warren Buffett
Warren Buffett
Warren Edward Buffett is an American business magnate, investor, and philanthropist. He is widely regarded as one of the most successful investors in the world. Often introduced as "legendary investor, Warren Buffett", he is the primary shareholder, chairman and CEO of Berkshire Hathaway. He is...
described it as "by far the best book on investing ever written", a sentiment echoed by other Graham disciples such as Irving Kahn
Irving Kahn
Irving Kahn is an American value investor and money manager and the oldest living investment professional. He was an early disciple of Benjamin Graham, the creator of the value investing methodology. Kahn began his career in 1928 and continues to work to this day at the age of...
and Walter Schloss
Walter Schloss
Walter J. Schloss is a well-regarded value investor, as well as a notable disciple of the Benjamin Graham school of investing.-Biography:...
.
Value Investing
The content of the book Value Investing already exists in its predecessor Security Analysis. Value investing (which differs from the speculative strategies like "momentum trading" or "technical analysis") objects to the economic assumption that the stock market is efficient. Efficient in this context means the market as a whole always knows the important information about a company. The consequence of such an assumption is that there can be no wrong valuation of the stocks. The pricePrice
-Definition:In ordinary usage, price is the quantity of payment or compensation given by one party to another in return for goods or services.In modern economies, prices are generally expressed in units of some form of currency...
of a stock always (at least in most cases) reflects the fundamental value
Value (economics)
An economic value is the worth of a good or service as determined by the market.The economic value of a good or service has puzzled economists since the beginning of the discipline. First, economists tried to estimate the value of a good to an individual alone, and extend that definition to goods...
of a company.
The idea of value investing is to buy stocks whose price is lower than their true value and then to hold those stocks until their price returns to the true value earning a return on the investment.
Mr. Market
Graham's favorite allegoryAllegory
Allegory is a demonstrative form of representation explaining meaning other than the words that are spoken. Allegory communicates its message by means of symbolic figures, actions or symbolic representation...
is that of Mr. Market, an obliging fellow who turns up every day at the share holder's door offering to buy or sell his share
Share (finance)
A joint stock company divides its capital into units of equal denomination. Each unit is called a share. These units are offered for sale to raise capital. This is termed as issuing shares. A person who buys share/shares of the company is called a shareholder, and by acquiring share or shares in...
s at a different price. Often, the price quoted by Mr. Market seems plausible, but sometimes it is ridiculous. The investor is free to either agree with his quoted price and trade with him, or ignore him completely. Mr. Market doesn't mind this, and will be back the following day to quote another price.
The point of this anecdote is that the investor should not regard the whims of Mr. Market as a determining factor in the value of the shares the investor owns. He should profit from market folly rather than participate in it. The investor is advised to concentrate on the real life performance of his companies and receiving dividends, rather than be too concerned with Mr. Market's often irrational behavior.
Editions
Since the work was published in 1949 Graham revised it several times, most recently in 1971/72. This was published in 1973 as the Fourth Revised Edition ISBN 0-06-015547-7, and it included a Preface and Appendixes by Warren BuffettWarren Buffett
Warren Edward Buffett is an American business magnate, investor, and philanthropist. He is widely regarded as one of the most successful investors in the world. Often introduced as "legendary investor, Warren Buffett", he is the primary shareholder, chairman and CEO of Berkshire Hathaway. He is...
. Graham died in 1976. Commentaries and new footnotes were added to the fourth edition by Jason Zweig, and this new revision was published in 2003.
- The Intelligent Investor (Re-issue of the 1949 edition) by Benjamin Graham. Collins, 2005, 269 pages. ISBN 0-06-075261-0.
- The Intelligent Investor (Revised 1973 edition) by Benjamin Graham and Jason Zweig. HarperBusiness Essentials, 2003, 640 pages. ISBN 0-06-055566-1.
Book contents
2003 edition by Benjamin Graham and Jason Zweig- Preface to the Fourth Edition, by Warren E. Buffett
- A Note About Benjamin GrahamBenjamin GrahamBenjamin Graham was an American economist and professional investor. Graham is considered the first proponent of value investing, an investment approach he began teaching at Columbia Business School in 1928 and subsequently refined with David Dodd through various editions of their famous book...
, by Jason Zweig - Introduction: What This Book Expects to Accomplish
- Commentary on the Introduction
- Investment versus Speculation: Results to Be Expected by the Intelligent Investor
- The Investor and InflationInflationIn economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a...
- A Century of Stock MarketStock marketA stock market or equity market is a public entity for the trading of company stock and derivatives at an agreed price; these are securities listed on a stock exchange as well as those only traded privately.The size of the world stock market was estimated at about $36.6 trillion...
History: The Level of Stock Market Prices in Early 1972 - General Portfolio Policy: The Defensive Investor
- The Defensive Investor and Common StocksCommon stockCommon stock is a form of corporate equity ownership, a type of security. It is called "common" to distinguish it from preferred stock. In the event of bankruptcy, common stock investors receive their funds after preferred stock holders, bondholders, creditors, etc...
- Portfolio Policy for the Enterprising Investor: Negative Approach
- Portfolio Policy for the Enterprising Investor: The Positive Side
- The Investor and Market Fluctuations
- Investing in Investment Funds
- The Investor and His Advisers
- Security Analysis for the Lay Investor: General Approach
- Things to Consider About Per-Share EarningsEarnings per shareEarnings per share is the amount of earnings per each outstanding share of a company's stock.In the United States, the Financial Accounting Standards Board requires companies' income statements to report EPS for each of the major categories of the income statement: continuing operations,...
- A Comparison of Four Listed Companies
- Stock Selection for the Defensive Investor
- Stock Selection for the Enterprising Investor
- Convertible IssuesConvertible securityA convertible security is a security that can be converted into another security. Most convertible securities are bonds or preferred stocks that pay regular quarterly interest and can be converted into shares of common stock if the stock price appreciates to a predetermined...
and WarrantsWarrant (finance)In finance, a warrant is a security that entitles the holder to buy the underlying stock of the issuing company at a fixed exercise price until the expiry date.... - Four Extremely Instructive Case Histories
- A Comparison of Eight Pairs of Companies
- ShareholderShareholderA shareholder or stockholder is an individual or institution that legally owns one or more shares of stock in a public or private corporation. Shareholders own the stock, but not the corporation itself ....
s and Managements: DividendDividendDividends are payments made by a corporation to its shareholder members. It is the portion of corporate profits paid out to stockholders. When a corporation earns a profit or surplus, that money can be put to two uses: it can either be re-invested in the business , or it can be distributed to...
Policy - "Margin of Safety" as the Central Concept of Investment
- Postscript
- Commentary on Postscript
- Appendixes
- The Superinvestors of Graham-and-Doddsville
- Important Rules Concerning Taxability of Investment Income and Security Transactions (in 1972)
- The Basics of Investment Taxation (Updated as of 2003)
- The New Speculation in Common Stocks
- A Case History: Aetna Maintenance Co.
- Tax Accounting for NVF's Acquisition of Sharon Steel Shares
- Technological Companies as Investments
- Endnotes
- Acknowledgments from Jason Zweig
- Index
Further reading
- Williams, John BurrJohn Burr WilliamsJohn Burr Williams , one of the first economists to view stock prices as determined by “intrinsic value”, is recognised as a founder and developer of fundamental analysis. He is best known for his 1938 text "The Theory of Investment Value", based on his Ph.D...
. The Theory of Investment Value.