THE INTELLIGENT INVESTOR

The Intelligent Investor



The Intelligent Investor

Introduction

Benjamin Graham was an influential American economist and a legendary investor. He is considered the father of fundamental securities analysis. Benjamin Graham taught from 1928 to 1957 at Columbia University, where Warren Buffett, William J. Ruane, Irving Kahn, and Charles Brandes were among his students. Graham supported the doctrine that a stock should be bought only by their fundamental value. Graham was of Jewish ancestry and he was born in London. He moved with his family to the New York. Graham was an exceptional student. He received an offer to teach for the subjects of English, mathematics, and philosophy. However, he rejected this offer to accept a job in Wall Street - an activity that culminated in the Graham-Newman Partnership, an early form of today's investment funds.

He presented his philosophy, based on the concept of "value investing" in “The Intelligent Investor”, a book that became the bible of investors since its first publication in 1949. In it, Benjamin Graham has warned investors about how to avoid errors of strategy, while describing how to develop a rational plan to buy shares and increase its value. This book has become a method aimed at investors to make wise decision, not speculators, who only takes into account market trends (Graham & Zweig, 2003. The investor gets their benefits based on the discipline and research.

Over the years, the market has been agreeing with each and every strategies proposed by Benjamin Graham, whose work remains a classic reference. This edition also has the valuable contribution of the financial journalist Jason Zweig, who has undertaken to discuss and update the text, drawing parallels between the examples provided by Benjamin Graham and real situations experienced in the world of finance in recent years.

The Predictability of Profits

One would normally think that the investment comes down almost entirely based on expected corporate profits. In this book, The Intelligent Investor, Benjamin Graham analyzes several actions without ever making predictions about future profits of companies. This is a proof that he does not believe that it is possible to predict the future. Any investor should be aware that if they make their investment decisions largely on forecasts, it is a well risky exercise. In any case, the expected growth of a company is often incorporated into the share price (Graham, 2005). This is one reason why Graham advocated diversification, which should however not be excessive. He explains his methods of evaluation of an action and explicated that it only requires simple calculations or the most elementary algebra. He does not believe in complex models filled with discounted cash flow forecasts.

The Top-down vs. Bottom-up Approach

Investment decisions involving a top-down approach first selects the areas that seem most interesting, and then it selects the best companies in these sectors. Benjamin Graham used a bottom-up approach to search for deals across the market. He renounced the top-down approach for two reasons. First, it is often preferred to the least preferred sectors of the market because it is where he could find more cheap stocks. When economic conditions favored the new industries, the shares rose. Second, Graham was not looking for necessarily the best companies in terms of profitability ...