MENU

My Review of Benjamin Graham’s Book, “The Intelligent Investor”

“The Intelligent Investor” is likely the most important book in the entire value investing literature space.

Warren Buffett once said that the book is “the best book ever written about investing”. That is quite a praise coming from the most famous investor in the world. However, I would like to go into a little more detail into the book and discuss why it is such an important book for someone just starting out in investing.

For those of you who are hoping to get some tips on how to find the next great stock from the book, you will most likely be disappointed. This book is not so much about the strategy and application of investing, but rather, it focuses a lot on building the right mindset for investing. That I believe is far more important and valuable than any investment strategy that you might find later on in life.

The Key Difference Between Investing and Speculation

This book is about the fundamental mindset that we should have about investing. It touches on a key topic, which is, “What exactly is investing?” Benjamin Graham highlighted investing by comparing it with speculation, sort of the Yin and the Yang of investing.

To him, an investment has to fulfil three criteria.

It has to go through thorough analysis; it should provide adequate return and must have the safety of not losing the capital. In other words, an investment is something that provides an advantageous risk and reward tradeoff after we have done a thorough analysis on it. Anything else that does not meet this standard is pure speculation.

Inflation

Benjamin Graham also talked about inflation and the idea of having a real return. This idea is simple but not many people truly understand it. Inflation is what causes the value of our money to shrink in the long run. For example, a bowl of noodle might cause just 20 cents 20 years ago, yet it costs $4 today. So, if we do not invest at all, our actual wealth would be shrinking every year.

Margin of Safety

Lastly, Benjamin Graham discussed the idea of the margin of safety. The idea is that before we invest, we should always factor in some discount from what we think the actual value of the investment should be. This allows us some margin of safety, in that we might not lose too much if we have made a mistake in our investment.

Foolish Summary

The Intelligent Investor is indeed one of the most important books in investing. It is useful for anyone just starting out investing as it focuses on letting us understand the right mindset that we should have when investing.

If you want to learn more about investing and to keep up to date on the latest financial and stock market news, you can sign up for a FREE subscription to The Motley Fool's investing newsletter, Take Stock Singapore

Also, like us on Facebook to follow our latest hot articles. The Motley Fool's purpose is to help the world invest, better.

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn’t own shares in any companies mentioned.