When Warren Buffett says that this book is by far the best book ever written on investing one has to take notice. While "The Intelligent Investor" exists in print in several editions, (4th rev edition 0060155477, 2003 rev edition w/ Jason Zweig 0060555661, and some audio book versions), this is a reprint of the original 1949 edition and has several virtues.
It is the original statement of what has come to be called Value Investing. This is a very philosophical book more than a book of techniques or methods of investing. Mr. Graham writes firmly and clearly about where the Investor's interests really lie. He is very hard on brokers, whose profession he considered more of a semi-profession because they have their own interests at heart more than those of their client. He also makes a strong case of about the kinds of returns one can expect from the market versus a company one actively manages. If investors of the 1990s had headed his views on management and their interests not being aligned with those of shareholders a lot less money would have been lost.
In several places he states that shareholders need to act more like owners and should not simply submit to management or let them have free reign with the resources of the company. He also advocated the importance of an independent board of directors rather than a board of management cronies. He rejects the notion of simply selling shares if you don't like the way the company is being managed. That is a dereliction of their duty as owners.
There is also a discussion of a variety of approaches to investing and he contrasts defensive investing or investing using analysis versus speculating. Like Buffett, Graham views investment as a buy and hold for the long term with active influence on the way the company is run. In his view, frequent trading is the road to losses. But at least you make capital gains possible for others.
Obviously, much of the specific information about companies, stock performance, taxes, US Savings Bonds, and such have to be adjusted for. We are more than fifty years later and much has changed. However, the core philosophy of the book is solid, readable, and profound.
The foreword provided in this reprint is by John C. Bogle who founded The Vanguard Group. He made a wonderful career and happy retirements for many based on the principles put forward in this classic text.
This book is a true classic, and most investors would be well-advised to start with this book as they seek to learn more about the process of making their money work for them. In particular, Graham's book is useful because it recognizes that the universe of potential investments is greater than just stocks - he covers warrants, bonds, etc.
Graham's main point is that investors look at the fundemantals that underly a potential investment to determine the probability of a satisfactory outcome. Hence, Graham does not focus on macroeconomic factors, but instead, he determines the "intrinsic value" for any investment, hopefully buying well below that value, a concept he calls the "margin of safety."
As some reviewers have noted, this book has been criticized by some thinkers as being out of date. In particular, most readers should understand that one of the theories that underlies Graham's philosophy, that a stock is worth the aggregate value of its expected dividends (See John Burr Williams' "Theory of Investment Value"), has been modified somewhat by "discounted cash flow" theories. This means that to some investors, p/e ratios and dividend payouts are de-emphasized somewhat. To me, this does not mean that Graham's theories lose validity, particularly as concerns the notions of intrinsic value and the margin of safety.
As far as I am concerned, Graham's book is most useful when viewed as a theory about how to invest. As such, it is a valuable guide, particularly when read in conjunction with Phil Fisher's book "Common Stocks and Uncommon Profits" and Marty Whitman and Marty Shubik's book "The Aggressive Conservative Investor." Another book that readers of the Intelligent Investor might like would be Dreman's "Contrarian Investing: the Next Generation."
A quick warning to prospective readers: at the outset, reading anything by Graham can be somewhat slow going. I received a copy of this book as a gift years ago, and could not slog through more than 1/2 of it. It was only years later, after learning more about investing and accounting, that I truly came to appreciate the wisdom contained in this book.
Readers who appreciate The Intelligent Investor might also want to try "Security Analysis," which develops the ideas in the Intelligent Investor in much greater detail, and also sets forth more criteria about how to analyze investments (the chapters on financial statements are particularly useful). I have reviewed that book (3rd edition) as well, if anyone is interested.
Although it takes some work to make it through this book, one point that readers should understand is Graham firmly believes that it takes work to invest wisely. He would never encourage investing on tips, momentum investing, etc. A reader would be well-served to apply himself or herself to investing research with the same diligence that reading this book requires, and I don't doubt they will be rewarded as a result.
What are you waiting for, buy the book and rock your world. I am reminded of the old joke we use to tell in Wall Street when I was with Lehman Brothers back in the 1970's. It's the story about the guy who is given permission to remove as much gold as he can from Fort Knox but he only has a morning, and must work alone. He's given a truck and a wagon to haul the gold with. He gets in the truck and heads the wrong way. "Where are you going, you are going the wrong way, you only have a morning to work with, and the clock has started." His answer is classic, "I am going to get breakfast first."
The point is very simple. People are reading Wall Street Journals, getting MBA's, and watching the talking heads on television. I've got portfolio managers who would kill for an edge, and every one of them, all of them are missing the point. It's all there, all the knowledge, all the wisdom you need to become a MASTER in the financial markets. You simply have to know what to read, and you begin by reading THE INTELLIGENT INVESTOR.
At Harvard we use to say they divided the building up into two lecture halls tonight. The door at the first hall has a sign that says LECTURE ON GOD, on it. The door of the second lecture hall has a sign that says GOD on it. Everybody wanted to go to the lecture. Listen up folks, this book THE INTELLIGENT INVESTOR, it's the real thing. This is not Madison Avenue sitting down with a author that they pulled out of Hollywood, and said let's put some interesting witticisms into a book on investing, dress it up, market it smart, and make a couple of bucks.
This is a book by a man with an Einstein type IQ, whose natural abilities were in the financial arena, who has the uncanny skill sets to explain himself in beautiful prose that just about all the rest of us can understand. If you want to be in the stock market, and you haven't read Benjamin Graham, it's like being in a gunfight in the old west, and not having a gun. You got to do the basics, and very few people do.
Wasn't it Woody Allen who said, "80% of making it is just showing up?" If you want to be in the market, and outperform everybody else wanting the same thing, than you can't do the same things they do, or you will get the same results, and that means mediocrity. You are in the race for Alpha, the extraordinary return. To win the race, you need an EDGE. Now how many people do you think are doing the basics? The answer is about as close to zero as you can get.
Investors, just like people want instant gratification with a minimum of effort, energy, and pain, and that's not how smart, astute investing works. You need to read books like this one not once, but over and over again, until it becomes part of you, until emotionally its wisdom becomes imprinted in your brain. You then need to start implementing it. See what kinds of results you are getting, and then make the adjustments necessary to make its wisdom YOUR OWN.
In other words, you need to OWN THE KNOWLEDGTE THAT'S IN THIS BOOK. Can it be done? Yes, but not easily. Benjamin Graham spent a lifetime figuring this stuff out. He didn't hit the ski slopes at Sun Valley. He wasn't sitting by the pool at Bungalow 5, at the Beverly Hills Hotel. He was grinding out the "Margin of Safety" concept, and testing it against the real world, did it work, and did it falter? Was it a 100 percent reliable.
I have heard Warren Buffett his most famous, but not only successful disciple tell the story of how the students in Graham's class room at Columbia would challenge the old man. Graham would used those challenges to make his thinking better, sharper, more real, and in so doing he became a better investor.
You want to know about Mr. Market, and why just about every investor ignores this theory, which is the equivalent of the Quantum Theory in Physics. You need to read the book. In Chapter 11, he teaches you how to value a business, his way. The teachers at Harvard, Wharton, Ross School, and others have nothing on Ben Graham. We are all students at his feet.
In my lifetime, I have worked with some of the smartest people on the planet. My direct mentor is the richest man on Wall Street, and I have known just about every major national and international investor worth his salt in the world in my generation. Every one of them could quote Benjamin Graham, meanwhile the want-to-bees, were out getting fitted for suits, after having lunch at the 21 Club.
Absorb some wisdom from someone who has been there. Read this book; learn about the "Circle of Competence", and the overwhelming importance of investor psychology. It is amazing that in this book several generations old, Ben is dealing with the same issues confronting us today, director independence, broker conflicts, frequent trading and the lack of performance it creates, management teams out of control, and dealing in a self-serving manner.
Each edition of this book is unique in its own way, with different world-class players commenting along side the text. I happen to like this edition because John Bogle (read his books also) is a man who I respect enormously who has impacted the investing world. The revised edition with Warren Buffett commenting is wonderful also. You simply can not go wrong touching anything that has been written by Benjamin Graham. Good luck.
on April 11, 2006
Out of all the editions of this book commonly available I have to admit liking this one the best. It is the original Graham unfiltered by Warren Buffett or anyone else. There is some great advice in the book but much of it is available elsewhere these days and much of it many experienced investors understand only too well after recent adventures in the stock market. It is worth noting, however, that despite all the hype about Graham's being a buy and hold kind of guy, the book contains a Dow Jones timing strategy that the author thought the public might find useful in timing their sales and purchases of stocks.
Anyhow, those wanting to hear this advice from the horse's mouth will enjoy this book better than the other editions.
on January 2, 2008
I suppose that this edition--released after Jason Zweig released in 2003, the revised 1973 edition with his commentary jammed in between the chapters--was released to show people what Graham really wrote in his first 1949 text who might have not wanted a book with commentary inserted in it, and in its pure and unadulterated form. I might say, however, that I'm reading the 2006 edition by Jason Zweig right now, and I find it far more readable. The examples are more up to date there and the language is a little more modern.
However, I must admit the merits of the 1949 edition: Graham himself said people need a better sense of financial history, and what better way to see the past than to read his original edition, and it's kind of neat to see what he was thinking when he wrote the book in the first place. It allows the book to speak for itself, rather than telling you what it means in between each chapter, and I guess that's a positive in some ways. It was written in the heyday of Graham's career on Wall Street. Also, he warns on the first chapter that things mostly relating to specific securities would become completely outdated with time, but those precepts relating to human nature would remain the same.
Boy was he ever right!!! Wall Street acts no more intelligently in 2008 than it did sixty years ago. Just like a herd of frikking lemmings, all jumping off a cliff together!
I recommend reading the 1949 edition first, to give you a sense of historical-financial perspective. Then pick up a copy of the 2006 revised edition with Jason Zweig's commentary, and read that.
What I don't understand is, WHOM did Graham write this book for in 1949 of all times, when only 2 million Americans, mostly upper-class, owned stock? Maybe he was prescient and saw ahead to now, when 90 million Americans of all walks of life own stock (and stock mutual funds). If that's the case, this man is a prophet.
on November 23, 2014
It gets the Warren Buffett seal of approval, therefore everyone who reads it is going to clamor over how good it is. But let's think for a moment. If you begin investing using Graham's "net net" methodology, you are going to lag the market. I have read this book before. I am re-reading it. This is one of the first books I read about the stock market, for the same reason everyone else does, because the rich man recommends it. Let's look at what Graham preaches though. He spends the first part of the book going over 70-100 years of stock price history, when a MUCH BETTER analysis exists in "Stocks for the Long Run" by Jeremy Siegel. He says to buy stocks trading below their net tangible assets and book value. America and business has changed!!! Contract manufacturing and outsourcing did not exist nearly to the degree they did in 1970! Graham mentions that AT&T traded at below it's tangible assets in 1970, which was not a period of cheap stock prices. Today it trades at roughly 2x book value, let alone tangible book value. It trades at 10x earnings. Meaning you will have to wait until T trades below 5x EPS to buy it. Today's businesses are doing more with less. Why does Graham recommend this? Because if you buy stocks of companies trading below tangible assets, you will be less swayed by the market swings. How about working on your temperament so you are not so easily swayed by "Mr. Market?" A better book on psychology has also been written since 1970: "Inside the Investor's Brain." I have read a LOT of books on the stock market between when I started and now, including many on psychology of investing. I'd much rather mentally train myself rather than buying stocks of garbage companies that are more likely to go nowhere or down.
Aside from "Stocks for the Long Run" and "Inside the Investor's Brain," I suggest "Value Investing; From Graham to Buffett and Beyond." It is a more modern version of this book.
This book also spends a lot of time discussing bonds. I do not invest in bonds and don't plan to for several decades. Graham's suggestion is to not invest in foreign bonds because you have no legal recourse if they default. How about buying a diversified international bond fund? I'm sure they exist! I know I performed sacrilege by not praising one of Buffett's favorite books, but I think this will be a little more beneficial to people, especially those starting.
on April 11, 2007
During the last five years I entered the stock market and took a couple of seminars on investing in stocks, the seminars were valuable introductions to the market, after reading the book I discovered that what I had learned in those seminars was to behave like an speculator rather than a true investor. After many costly mistakes I know why I needed to read the book. The cases presented in the book of companies that in many cases no longer exist do not harm the wisdom and clarity of the basics needed to become a true investor. I recommend the book to every person who wants to enter the market. It is actually a must read beforehand. Now I know what Warren Buffet means when stating "this is the best book on investing ever written". Hope you will find it as valuable.
Carlos Irving Rojas - Mexico City
on August 1, 2005
A must for amataurs, professionals, finance students worldwide. The text covers a lot of ground - not just common stocks but all types of bonds also. Personally I enjoyed reading the 1970's edition with Warren Buffet, but this edition looks better on your shelf! You won't be disappointed with this book, Graham's insight and writing style suit all ages. He takes a long run, value driven approach to investing that you will find expands your view on investing like no other book written before or since.
First, I just want to say that many of you might find this book boring to read. If that turn out to be the case, you can read the commentary (which uses more relevant and recent examples) for each chapter by Jason Zweig, which is worth the price of the book alone. I got tempted to read the commentary only but I forced myself to read the entire book and I'm glad I did it. Warren Buffett is right, this is the best book on investing ever written, by far. This is one of the reasons in my opinion why Warren himself never write an investment book (plus the fact that it is not easy to explain Warren's intelligent on a paper. Instead just learn from what he does).
Now about the content of this book, it tells you everything you need to know about the investing field (not only stocks, but business in general, bonds, macro economy to some extent, psychological factor of the market, strategy for defensive and speculative investors etc).
Secondly, Warren Buffett highly recommend this book and his favorites are chapter 20 (Margin of safety) and chapter 8 (Investor and market fulctuation). Margin of safety should be the central concept of your investment, and understanding how the market works (and the mood and inconsistencies of Mr Market) should be the second thing that you need to know before jumping into the market.
I also find the chapter 11 (security analysis for lay investor) very educating as it teaches us to value the future of a business (breaking down into 3 area:
1. Long term prospect
2. Quality and conduct of management
3. Financial strength and capital structure
Additionally the comparison of eight companies (chapter 18) very practical and eye opening. I won't spill the content right here but when I read them, it feels like common sense to me, but back (during the tech bubble) then I was involved in several similar stocks that I shouldn't have touched with a ten feet pole.
The bonus chapter "The Superinvestors of Graham-and-Doddsville" by Warren Buffett is a classic reading. This article shows how inefficient the market can be, and argue that most of the time the market is not efficient. I have become a believer that the market is not efficient (after many years believing that the market is very efficient as the business school has taught me)
This book also cover several useful metrics that we can use to value a company in addition to just looking at EPS or PE ratio, such as the ROIC (Return on Invested Capital) etc.
In general, Ben Graham focuses a bit more on capital preservation (shown by focusing on margin of safety, dividend policy, and stocks priced below its tangible book value strategy.) which I think are really important, but one need to understand that there's more to investment than just those things (such as long term groth/the business itself and management) which are also covered in book.
This book would not serve as your investing philosophy, but it should help you create your own investing philosophies. It will help you find what your strength (defensive or enterprising) is and find/form your circle of competence. And as a minimum, this book will increase your confident when dealing with the stock market.
Last but not least, also read "Common Stocks and Uncommon Profits" by Philip A. Fisher and "One up on Wall Street" by Peter Lynch to complement this book.
on April 17, 2011
I noticed that the original edition has fewer comments (32 comments) compared to the 1973 edition (197 comments). I strongly urge investors to buy this original 1949 edition !
The 1949 edition includes a very interesting introduction by John C. Bogle. I am confident that most value investors are not aware of the substantial change in Benjamin Graham's technical view towards stock portfolio formation in 1976. Check it out and buy the original edition !
Look also on the internet for the following three interviews if you want to learn more about Benjamin Graham's substantial change towards stock selection in the mid 70's:
A conversation with Benjamin Graham, Financial Analysts Journal, 1976
An Hour with Mr. Graham, Financial Analysts Journal, 1976
The Simplest Way to Select Bargain Stocks, Medical Economics, 1976