One Often Overlooked Concept in “The Intelligent Investor” Book

When we talk about the most important book for value investors, most of us would mention, “The Intelligent Investor” by Benjamin Graham. Many would also highlight the key ideas of the book such as “margin of safety” and “Mr Market”.

However, we do not link the teaching of Benjamin Graham with evaluating the quality of management that much. It is almost as if he preached about investing in cheap companies without much consideration to the quality of the leaders managing the firms.

That is far from the truth. In fact, Benjamin Graham dedicated more than one chapter of his book talking about how we should be reviewing the quality of management. More importantly, in his own words, he stated that “poor managements produce poor market prices.”

Here is one key point on how Benjamin Graham felt we should be judging the quality of management.


One easy way for us to see if the management is fair to minority shareholders is from the dividend policy. When we are analysing a company, we can see if the management is paying out its excess cash and earnings as a dividend to its shareholders or is it hoarding onto unnecessary cash.

The situation might be even more suspicious if management is increasing their remuneration while reducing dividend payout to shareholders. Moreover, if a company has already set a dividend policy, it could be a warning sign if it does not follow through with its self-imposed dividend policy.

Foolish Summary

Investing is both an art and science. It is easy for us to go through financial ratios and valuation of a company. However, it is much harder to evaluate the quality of the management correctly since it can be subjective.

Benjamin Graham has shown us in his book that one simple way to review management is by looking at the dividends of a company.

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.