ModernGraham

MGBookClub: The Intelligent Investor – Introduction

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This is the first discussion of the ModernGraham Book Club’s reading of The Intelligent Investor by Benjamin Graham (affiliate link).  This week we are covering the Introduction of the book.  I encourage you to purchase the book (preferably by clicking the link to Amazon, because a purchase through that link will help support the club) and join in with us as we read through a chapter each week; however, even if you don’t have the book I think you will find our discussions to be very useful in your own understanding of value investing, and you can still bring a lot to the discussion from your own experiences as an investor.  Whether this is the first day you’ve ever been interested in investing, or you have decades of experience with the stock market, we’d love to hear your thoughts in the comments below!

For this particular book’s discussion, we will also have my wife Heather giving her thoughts.  Heather has very limited experience with investing, so she will be able to provide the thoughts of a relative beginner.  It is planned that each post will include each of our thoughts about the chapter followed by some discussion questions.  Please feel free to leave a comment on this post with your own responses to the questions, along with any other thoughts you have, and return throughout the next couple of days to see what others have said.  Later in the week, I will choose my favorite comment and feature it in a post on the site, so be sure to be thorough in your discussion!

ModernGraham’s Comments

Ben

I believe most of you already know my background (and if you do, feel free to skip to the next paragraph), but I was part of the Finance Honors program at DePaul University as an undergraduate student back in 2006.  One of the professors I had suggested I read The Intelligent Investor, as he believed it to be the single greatest book about investing.  He was right.  After reading it, I was so inspired by Graham’s investing methods, that I sought to create this site in an effort to chronicle my own growth as an investor and to see if Graham’s methods could be modernized further for today’s markets.  I took some time off from the site while I attended law school, but my thoughts often came back to Intelligent Investing, and I relaunched the site in October 2013.

I think the introduction to the book is very strong, and it serves as more than a simple outline of the book.  It begins with a key quote from George Santayana, who is famous for saying “Those who do not remember the past are condemned to repeat it.”  This brings us to one of the keys to Intelligent Investing, which is remembering the lessons of the past as we analyze our investment opportunities.  How many times have we seen the market create a bubble, only to have it burst and cause many speculators to lose their fortunes?  I believe the market will continue to exhibit this behavior time and time again, and we as Intelligent Investors must be careful to not find our emotions to drive us into the speculative intrigue of the market’s bubble tendencies.  As Graham said, in the past “sound investment principles generally produced generally sound results.  We must act on the assumption that they will continue to do so.”  That remains as true today as it did in 1972.

Heather 

I’m Heather, Ben’s wife. Back in 2006 Ben discussed the idea of creating a blog to write about his passion for Benjamin Graham, but couldn’t decide what to name it. I recommended “Modernizing Graham”, which Ben rightly changed to Modern Graham and this site was born. I’m a bit ashamed to admit that was probably the most helpful I’ve been, so when the site was relaunched in October I decided to find a way to take a more active role. Reading The Intelligent Investor is my first step into what I hope will be a dedicated awareness of all that Ben has accomplished with Modern Graham.

With a background in both political science and education, investing and finance have never been part of my daily routine. However, I have a love of history and a deep interest of how human behavior impacts the world around us, which is why this book really resonates with me. While I’m just starting my first read through, I’m already enthralled with Graham’s attention to history and recognition of the role of emotion in financial decisions. Logic such as recommending buying stocks as we buy groceries and enthusiasm for bear markets make complete sense to me in a “why isn’t everyone investing like this?” way. I can’t be sure how I’ll feel 514 pages from now when I reach the end of chapter 20, but for now I’m excited to learn more about investing and the rationale behind Benjamin Graham’s value investing.

Discussion Questions

Please leave a comment below and feel free to answer any of these questions, or just give your general thoughts.

  1. Please introduce yourself, giving particular emphasis on your background in investing.
  2. What do you expect to get out of reading The Intelligent Investor?  

    What is your motivation for reading?

  3. Did you find anything particularly interesting in the Introduction?
  4. Graham said that “the investor’s chief problem – and even his worst enemy – is likely to be himself.”  Has this been true in your own investing experience?  What do you think you can do to not get in your own way?
  5. When Graham wrote the 4th Edition, the investing environment was replete with very high interest rates, which affected at least in part his general outlook on bonds versus equities.  Today we are seeing historically low interest rates.  How do you think Graham would react to the current market?  Would he put a greater emphasis on equities, focusing specifically on strong dividend yields, or would he continue to advocate in general a 50-50 split between bonds and equities?  What other things do you think should be taken into consideration when investing?

  6. Why do you think that Graham stresses that anyone can invest?

  7. Do you consider yourself to be a Defensive Investor or an Enterprising Investor?  (see What Kind of Investor Are You? for more information)

  8. Zweig writes in his commentary “…foresight has no real value if most other investors are already expecting the same thing” (p. 16). In a world with instant communication and free access of information, do you think exclusive foresight is possible?

Next Week’s Discussion: Chapter One

Chapter Title – Investment versus Speculation: Results to be Expected by the Intelligent Investor

When reading the next chapter, try to think about your responses to this week’s discussion.  In particular, remember where you decided you fit among Defensive Investors and Enterprising Investors.  Think also about what has happened during the time since the book was written in 1972 (hint: if you have the newer editions with Jason Zweig’s commentary, there is some discussion about the 1972-2000 markets).

What are some other ways to participate?

If you are a blogger, you can give your thoughts in a post on your own site, link to the discussion here on ModernGraham, and I will be sure to let our readers know that the conversation is going on over at your site as well.

In addition, you can use the hashtag #MGBookClub in social media to talk about the book on Twitter or Facebook!

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Comments

47 responses to “MGBookClub: The Intelligent Investor – Introduction”

  1. Rodney P. Dempsey Avatar
    Rodney P. Dempsey

    1. I began investing in 1962.I am 76. I am a 1959 History and Political Science B.A. graduate from tiny KY. Wesleyan College. I believe in the influence of political action and history on the stock market and economy of the United States.
    2. My motivation is to become a value investor to protect and grow our portfolio to provide for my Wife as long as she lives.
    3. Comments by Sayre, Zweig, Buffett, about Ben Graham. They are endorsements from great investors and brilliant thinkers.
    4. I have been impulsive and purchased stocks without using great investing principles and careful analysis. I have lost money using brokers and investment advisors. There motivation has been selling, not research primarily. They don’t earn unless they sell you there services.
    5. I sold every bond in my portfolio in 2013. Governments are mismanaged financially. Their goal is to generate a better economy for their city, state or our nation – not make money. Most Mayors, Governors, and Presidents have an edifice complex. They want to build something to be remembered by and use bonds to finance it. Our artificially low interest rate is causing a bubble that will ultimately bankrupt America. I think Graham would take advantage of it in buying companies he wanted to own, but those companies would not be beholden to Government for their stability or growth.
    6. Because in today’s economy everybody should invest. Our government is bankrupt, and Social Security, Medicare, and Medicaid will ultimately fail.
    7. Defensive because of my age. I hope my sons and granddaughters will be Enterprising Investors.
    8. Investors like to look through rose colored glasses, too optimistic in what they buy. Most advisory services are not objective, but too positive in what they advise. They are too prone to promote what is hot today, and don’t study history. Isaac Newton said it best, what goes up, must come down. The stock market is no exception. We must learn to project bottoms and buy then. The stock market is like the tide, it goes up and comes down.

    Reply
    1. Benjamin Clark Avatar
      Benjamin Clark

      Rod – thanks for the responses. It sounds like you have some great experience to draw from, as you have learned many investing lessons over the years. Do you have any other thoughts about the Introduction?

      Reply
    2. Heather Clark Avatar
      Heather Clark

      Thanks for your input! I completely agree with you about the influence of political action and history on the stock market! That is one area I’m really hoping to learn more about.

      Could you elaborate on why you sold all your bonds this past year?

      Reply
  2. Hurricane Capital Avatar
    Hurricane Capital

    Thanks for a great blog!

    I have read the introduction of the Intelligent Investor and written down my response to the discussion questions you posted. Please feel free to visit my blog at http://hurricanecapital.wordpress.com/.

    Great initiative! I really look forward to read the Intelligent Investor and be part of the ongoing discussion here at Modern Graham.

    Reply
    1. Benjamin Clark Avatar
      Benjamin Clark

      Thanks for posting your comments on your site. I’m really looking forward to hearing more from you as we read through the book!

      Reply
      1. Hurricane Capital Avatar
        Hurricane Capital

        Reading through the book together with everyone else here will be great. //HC

        Reply
      2. Money Al Avatar
        Money Al

        Hello Ben: First of all I would like to say Thanks for starting your Website !
        I am a Novice Investor, trying to learn all the terminoogy and Formulas of
        the investing world, along with what areas to look for that make One Company
        a Great Investment ( CEO, Market Niche, Technology Leader Sound Numbers)
        versus a Comapny that looks good on paper, but is a bad investment due to
        ( inept CEO, poor innovation, or stagnant sales)!
        So One “Major Suggestion” is that text is one dimensional, sometimes it is difficult
        to understand a formula or concept, so my suggestion is to develop small 5 to 10
        minute video’s on You tube (which explain in detail ) what a
        Defensive and Enterprising Investor are
        and how do you derive these formulas to calculate a Pemg, NCAV, PB Ratio
        to a new person starting out – – – this is all very confusding and hard to understand
        and using Simple Explanation video’s Like Khan Math video’s on You Tube which take
        complex math problems and breaks them down into simple explanations and demonstrations
        to make math easy ! And Gues what Salman Khan gets paid for all these video’s
        If you do the same I think it will be a God Send for All New Investors !
        Thankyou for your time !

        Reply
        1. Heather Clark Avatar
          Heather Clark

          Money Al – Thanks for your suggestion! As a novice blogger myself I often have to ask Ben to explain posts that he has written to me in person so that I can get a better understanding. I think that videos would really help people to get a better grasp on the concepts Ben writes about.

          Ben and I will look into the options for videos over the next few weeks and hopefully we can get a few up and running. If you have any suggestions for software or approach to the videos, please let us know!

          Thanks again!

          Reply
  3. Mark Avatar
    Mark

    1. I am 66 years old and have been aware of value investing for a long time. I hold an MBA and I am a former banker. For the last 10 years have been a Business College Program Chair. I teach finance, economics, and international business. Like Rodeney above, I am a fan of financial and economic history.
    2. I am reading the book for the second time. The first time was many years ago. I have the green 4th edition, but will upgrade if it is necessary. I think I will get more out of the second reading, especially in the setting you are providing. I just finished rereading Seth Klarman’s book “Margin of Safty” and I think I can build a solid investment philosophy from those 2 books.
    3. Two things Graham mentions (along with several others)in the introduction are that a firm’s growth prospects do not translate into profits for the investor, and experts do not have reliable methods of selecting the most profitable industries and companies.
    4. I tend to suffer from optimism bias. Also, because I have a background in finance, I tend to make things too complicated. I will post 5-8 tomorrow.

    Reply
    1. Benjamin Clark Avatar
      Benjamin Clark

      Mark – It’s great to have you participating. I’m sure your banking history and your teaching background will benefit the discussion greatly! Upgrading to the newer Zweig editions is not required, but I do recommend it. Zweig provides commentary with each chapter that is very informative and interesting to read. It’s well worth the purchase, in my opinion.

      The things you found interesting in the intro are very true, and one of the reasons why I personally follow a bottom-up approach to investing. I can’t tell which sectors will perform well, but I can decide which companies are trading below their estimated intrinsic value.

      As for a background in finance making you need to make things more complicated, I suffer from some of the same tendencies. I think it’s because of a lot of the emphasis in modern financial theory on developing a complex and thorough model. I have found the Graham formula to be so much easier to implement, and it generally produces good results (though no valuation model is ever perfect!).

      Reply
    2. Mark Avatar
      Mark

      5. I believe Graham would not be a fan of bonds at the present time because of the artificially low interest rates caused by the Fed’s QE. When rates do go up, the existing bonds will be hit very hard. I believe we will see the stock market go up for a while as all that printed money has to go somewhere. That means the next asset bubble is probably stocks.
      6. Graham states that people should save a portion of their income and put a part of those savings into stocks and bonds.
      7. I am an enterprising investor because I am comfortable with a certain amount of risk, and I need to carefully make up for lost time.
      8. If by foresight and expectations he is saying the result becomes a self-fulfilling prophecy. I think that gives contraians an advantage.

      Reply
      1. Benjamin Clark Avatar
        Benjamin Clark

        Mark – I agree that Graham would be hesitant to put money in bonds. It will be very interesting to see what happens to the bond market as stocks continue their rise. In theory at some point stocks will come back down and more money will pour into bonds, but who knows when that will be.

        Reply
        1. Mark Avatar
          Mark

          Ben, no one knows when the stock bubble will burst, but intelligent investors will have a clue…when you can not find undervalued stocks to invest in.

          Reply
          1. Heather Clark Avatar
            Heather Clark

            Mark,that is a good point. Do you have any thoughts on how many stocks should be undervalued before it is a strong indication that the stock market is nearing a peak?

            Reply
            1. Mark Avatar
              Mark

              I don’t have an idea of a number Heather because each market is different, but if markets are setting record highs, bus boys and girls are giving out stock tips, and you are spending an inordinate amount of time trying to find undervalued stocks to analyze, it may be time to unwind your holdings.

              Reply
              1. Heather Clark Avatar
                Heather Clark

                Thanks, Mark! That makes sense.

                Reply
          2. W.Mann Avatar
            W.Mann

            reading through the conversations, it is interesting that the defensive
            Investor would think of a “STOCK BUBBLE” of today’s market….
            no doubt there are some bubbles floating today…some just appear to be.
            Google , Apple… what would Graham think…

            I think there is a place for some speculation with a small portion of a
            portfolio…otherwise were is the fun.
            W.M

            Reply
  4. John Avatar
    John

    1. I am a 54 year old financial advisor with a small independent firm. Formerly I was with a major brokerage firm. Prior to that I was with another well-known non-financial company. I’ve been formally a value-school investor for at least 10 years and I liked it before that but was before the beginning in learning.
    2. I hope to improve my ability to read financial statements and to do so quickly.
    3. I haven’t read the intro yet – I just saw this today and ordered the book which I’ve been meaning to spend more time on anyway.
    4. Yes, we are our own worst enemy. People ask me how I can deal with “all the math” that’s involved in financial advising. I tell them that the truth is that the job is 95% psychology! I have learned to be patient, as in multiple years to a lifetime, and I hope to communicate that to as many people as possible.
    5. I would like to think that patience wins the day regardless of the current environment. That’s not to say that we should never adapt to what is going on – of course we should. Nonetheless, the fundamentals of our approach should be the same even when the tools we use need to be different from time to time. I think the “correct” split between bonds and equities is determined by how much cash flow you want now versus later and if you’re okay with having to sell in order to get paid. In my opinion, the definition of retirement is getting paid to NOT go to work.
    6. Graham stresses that anyone can invest because anyone can given the right temperament and training.
    7. I consider my both a Defensive Investor and an Enterprising Investor. Mostly defensive, but not to the point of ignoring opportunities that meet the criteria I’ve set forth.
    8. I do not think that exclusive foresight is possible. If it was, and I had the crystal ball, I wouldn’t be here right now. 🙂 I’d be sailing around Fiji when I wasn’t colonizing the moon. That said, the instant communication and free access to information part implies The Efficient Frontier, and it doesn’t take much to see that there’s enough misinformation and enough emotion going around to make the markets still a good place to be for the rest of us.

    Reply
    1. Benjamin Clark Avatar
      Benjamin Clark

      John, it’s great to have you in the discussion! I’m sure your investment experience will add a great deal to the conversation. There are many ways to analyze financial statements, but one thing you will learn when reading this book is to isolate some of the key information in order to narrow down which companies you are interested in. Once you’ve done that you may still wish to employ further analysis, but you don’t have to do it for every company.

      Maybe one day we will all be sailing around Fiji, if we can manage to keep our emotions out of investment decisions over the long-term!

      Reply
    2. Heather Clark Avatar
      Heather Clark

      John, I agree that much of the stock market (and life in general) is psychological. What advice do you give people on how to make sure they are approaching their investments with the right mindframe?

      Reply
  5. EarlyCeo Avatar
    EarlyCeo

    Ben, I stumbled upon your web site and am intrigued with what you are doing and your value oriented approach to investing. So I just ordered “The Intelligent Investor” book from your web site link and will get it next week.
    In the meantime, here is some information about me.

    1. I am 66 years old, having made a lot of money by starting/building companies and then losing much of it by turning it over to “brokers” to manage and also due to my own fear reaction to “expecting” down markets around every corner. I have steered clear of “Value” investing in the past because by temperament I am more action oriented and intuitive than studious and objective. My temperament served me well in starting companies, not-so-much in the investing world.
    What do I expect to get out of reading The Intelligent Investor? What is my motivation for reading?
    I am hoping that I will get a deeper understanding of the metrics and objective system involved in choosing great investments and perhaps through the book and this interesting discussion will learn to temper my action orientation. I want to grow the value of my and my wife’s IRA accounts.

    2. Did you find anything particularly interesting in the Introduction? Haven’t read it yet.
    Graham said that “the investor’s chief problem – and even his worst enemy – is likely to be himself.” Has this been true in your own investing experience?
    YES, I believe my “fear” trigger has kept me from being a successful investor.
    What do you think you can do to not get in your own way?
    Step out of action / reaction (especially “fear”) mode.

    3) Why do you think that Graham stresses that anyone can invest? I assume if one uses his method of metric based investing when the value of a company is significantly greater than the market price for the stock – the buy trigger isn’t based on love.

    4) Do you consider yourself to be a Defensive Investor or an Enterprising Investor? I have read your definitions. Personally I am more of an Enterprising investor, however if I follow your approach I will implement a Defensive portfolio in my wife’s IRA and an Enterprising one in my own.

    QUESTION FOR YOU:
    Your web site is very well done and your grammar and writing style very clear. In short, it is impressive. What is your business goal in providing this web site and the information contained in it? How much time do you devote to keeping it up to date or do you have others doing this for you? If you expect to make money from it, how? I am curious as to how much time you spend doing your analysis and whether you have an automated program to do much of the research and number crunching for you?

    I look forward to hearing your answers and to participating further.

    Reply
    1. Benjamin Clark Avatar
      Benjamin Clark

      EarlyCEO – Thanks for joining in! I’m sure your management experience will be useful, especially when we get to some of the later chapters that deal with management.

      I’ll send you an email to discuss your questions.

      Reply
    2. moneyal Avatar
      moneyal

      I have the same question as early ceo:

      Your web site is very well done and your grammar and writing style very clear. In short, it is impressive. What is your business goal in providing this web site and the information contained in it? How much time do you devote to keeping it up to date or do you have others doing this for you? If you expect to make money from it, how? I am curious as to how much time you spend doing your analysis and whether you have an automated program to do much of the research and number crunching for you?

      I look forward to hearing your answers and to participating further.

      ( Ben’s Answer: ) I’ll send you an email to discuss your questions:

      PLEASE ALSO COPY ME ON YOU ANSWERS !

      Thnk you !

      Reply
  6. Bear Gebhardt Avatar
    Bear Gebhardt

    Thanks Ben, for doing this.
    1.) My name’s Bear Gebhardt, I’m 67 years old, an ex-stockbroker (emphasis on ex), a mostly retired addictions counselor, a writer, and have been investing for over thirty years or so. (My manager at Prudential-Bache wouldn’t let me use the name “Bear,” for obvious reasons. My middle name is Jack, so that’s what I used. My books mostly appear under “Bear Jack” name. )
    2. I read Intelligent Investor years ago and wanted to read it again when I actually have the time to study it and maybe learn how to do it. I came away from my career as a stockbroker thinking that “one can ALMOST figure it out,” with emphasis on “almost.” If anybody can. Or did, it was Graham, and of course, Buffett.
    3. Graham hoped to make the difference between “speculating” and “investing” something the business press would eventually learn. Alas, it appears that battle has been decidedly lost.
    4. Yes, absolutely my biggest challenges (and downfall) in investing have been my own (mostly unseen)) emotional hang-ups and prejudices. The stock market is a humbling arena in which to test one’s insights. I have been humbled more often than I care to admit. Actually writing down on paper the half dozen or dozen “basic” qualifications I look for in a stock has been very helpful to get me past my own enthusiasms.
    5. I agree with other book club members that investing in bonds in this market is directly contrary to our common goal of “intelligent” investing. I have a few small muni-funds that have muni-bonds, but am 90% in equities. It will be interesting to hear if there is a different side to this story.
    6. Graham assumes that the “principles” of investing are fairly simple and can be learned by anyone of average intelligence. Alas, his “simplicity,” in my experience, quickly goes over my head. Hope this book club makes it more clear.
    7. I am more of an enterprising investor, with the secret assumption that “enterprise is the best defense.”
    8. Not only do I disbelieve in “exclusive foresight,” I tend to disbelieve in non-exclusive foresight. Nassim Taleb’s “Black Swan,” and the outcome of the recent Super Bowl were my teachers.

    Reply
    1. Benjamin Clark Avatar
      Benjamin Clark

      Bear – Thanks for joining our discussion! The business world definitely has failed to learn the difference between investing and speculating. I see a lot of comments on Seeking Alpha from individuals that don’t seem to understand the importance of having an established system of analysis. We’ll talk more about the distinction between investing and speculating next week.

      I’ve actually increased some of our holdings in bonds in the last 6 months, solely because the market as a whole seems to be moving closer and closer to a correction. When that day comes, I want to have a little less in equities and a little more in bonds, but that’s a somewhat temporary position.

      Reply
  7. Will Avatar
    Will

    1) My name is Will Zell and I am an entrepreneur in Ohio. My investment experience has been in real estate, business startups and a small portion towards securities. I have been a fan of value investing for about 5 years.

    2) Though I have been a fan for 5 years, I am now focused on becoming a student of value investing. My goal in reading through The Intelligent Investor is to learn what it takes to build a successful investment practice, developing securities investing as a major focus of my holding company, Providence Holdings.

    3) Laying the foundation of learning from past performance in the market was interesting. Understanding the cyclical nature of the market and how to approach it as a value investor is where it’s at.

    4) Yes, this is true. I have experienced this many times as an entrepreneur, letting emotion and speculative hope eclipse a more disciplined approach to an opportunity. However, every “mistake” has provided a platform for learning that has made me a better investor. I assume the same discipline is established through experience as a value investor.

    5) Yes, I think he would advocate for an emphasis on equities with strong dividend yields, especially undervalued securities as you have the upside potential of the security with a dividend yield comparative or better than bond rates.

    6) He believes successful investing is not a function of IQ or connections, but rather learning the disciplines of sound investment strategies. Most anyone who devotes to learning should be able to grasp and execute the strategy. It goes back to us being our own worst enemy. The only thing that stops us is… us.

    7) Enterprising.

    8) I agree with the other commentators. The vast noise presents an opportunity if you are disciplined. Exclusive foresight is not possible. Being a disciplined value investor is possible. It worked before the digital age and will continue to through the digital age.

    Reply
    1. Benjamin Clark Avatar
      Benjamin Clark

      Will – I’m glad you’re able to join in on the discussion. Learning from our own mistakes is critical, as you’ve stated, and now I hope we’ll all be able to learn from each other’s mistakes as we embark on this read through of The Intelligent Investor.

      Reply
  8. Richard Avatar
    Richard

    1. I have been fully retired since about 2008 (great timing) and living of my investments and military pension since that time. Prior to retiring I was exclusively a mutual fund investor but shortly after retirement started investing into individual companies with about half of my portfolio. My focus is primarily dividend growth stocks in an effort to achieve a growing income-stream along with long-term capital appreciation; which I view as critical to offset the effects of inflation. At present my portfolio is about 40% stocks, 40% stock funds, 10% in a bond fund, and 10% in a REIT fund. I do not practice portfolio balancing, each investment is evaluated on its own merit.

    2. This will be my third read of Ben Graham’s Intelligent Investor, the second one in the last 5 years. It will be fun to read through this introduction to securities investing and reflect on how my investing philosophy has been shaped by Ben’s. Hopefully it will be very close as I fully agree with his. It will also be fun to interact with other like minded people as we read through this book.

    3. The first two sentences of the introduction in my (what Graham calls in his note of acknowledgement) fifth version of his book Graham writes, “The purpose of this book is to supply, in a form suitable for laymen, guidance in the adoption and execution of an investment policy. Comparatively little will be said here about the technique of analyzing securities…” It is this fact that lead me to read another of Mr. Graham’s classics, “Security Analysis” which I first bought in edition 5 back in the mid nineties. Busy then with my career, the book overwhelmed me, so it sat on my shelf until I retired. After retirement I studied through the book three times and liked it so much I bought the 6th edition of Security Analysis when it came out; hoping it would update the GAAP issues discussed in the earlier edition. I was truly disappointed in the 6th edition as it almost totally eliminated the detailed nuts & bolts procedures for valuing companies found in the 5th edition.

    4. The psychology of investing is what convinced me that value investing was the only safe alternative to growing capital in the stock market. I passed the test of the great recession so I guess I will be one who will go down with the ship if our great economy ever disintegrates while I am alive. I reason that there is no difference between holding worthless stock and holding worthless money.

    5. I don’t think Graham’s premise would change today with low interest rates because today stock dividends are also much lower than in Graham’s day. I personally don’t see much value in bonds outside of holding as a cash reserve.

    6. Anyone can invest because it is not rocket science, It can be done with 5th grade math and good common sense.

    7. If I had to choose a label it would be a defensive investor although I do not use a strict cookie-cutter approach to stock selection.

    8. Yes, foresight is not the obtaining of information, it is the wise application of the information obtained.

    Reply
    1. Benjamin Clark Avatar
      Benjamin Clark

      Richard – It’s great to have you with us. Security Analysis is another great book, and it is another example of the way Graham shaped the financial analysis world. It’s sad to say that as time has gone by, students have been turned more towards “modern” methods rather than studying Graham in detail. I know in my experience as a student we barely talked about Graham even though his approach has proven successful time and time again.

      Reply
    2. Mark Avatar
      Mark

      “…foresight is not the obtaining of information, it is the wise application of the information obtained.” I like what Richard is saying here. Behavior finance teaches us that investors have different levels of mental and emotional intelligence, as well as, the fear and greed beast. Furthermore, we all have different levels of experience. Therefore, even in an environment of strong form efficient markets (perfect information, delivered immediately to all, including insider information), we would still react differently to the information (herd mentality not withstanding). That’s assuming perfect information even exist. It’s all about how we apply the information.

      Reply
    3. Heather Clark Avatar
      Heather Clark

      Richard, I really like your comment that there “is no difference between holding worthless stock and holding worthless money.” This is something that more investors need to consider when making financial decisions.

      Reply
  9. ROBERT Avatar
    ROBERT

    Hi,

    I’d just like to say that you have a great site. My experience with investing – been obsessed with stocks since I played the vintage NES game, “Wall Street Kid.” I was also president of the investment club in college. I read Graham’s book about 2 years ago and have to say I really liked it and try to approach investing with his ideas in mind. Although – there are times when I wish I would have bought Netflix at $79 last year (not sure if it would have passed either of BG’s tests – maybe you know?) Anyway – I am glad you created a site like this and look forward to rereading this book with everyone. Thanks.

    Reply
    1. Benjamin Clark Avatar
      Benjamin Clark

      Robert – great to have you with us!

      Reply
  10. PAXPORT Avatar
    PAXPORT

    Great book. Can’t stop reading it. Been meaning to read it for a long time.
    I’ve exclusively used an adviser until this year when I opened a small DI account which I am managing by myself. It’s doing as well as could be expected in the early 2014 environment. Right now, I suppose I’d be a defensive investor.

    Reply
    1. Benjamin Clark Avatar
      Benjamin Clark

      Paxport – Thanks for joining us! I’m sure you’ll really enjoy the book.

      Reply
  11. John M. Avatar
    John M.

    I came across your website by following seeking alpha. This looks great. Thank you for the effort, and I look forward to it. I have been trying and looking for or to create an investment club ever since I finished my MBA with a focus in finance. I have an undergrad degree in economics. My classmates did not have the time to devote to it, and the few I had left not long after they started. I am a long-time fan of Buffett. I read Snow Ball about 2 years ago. I had been reading other interesting books on successful investors – Titan (the John D Rockefeller book), The Millionaire Next Door, and a few others. I think that value investing and the teachings of Graham are by far the wisest way to approach handling your money.

    I was in banking for 11 years, but my focus was commercial banking, and I had many colleagues who were/are investment reps. They all knew little to nothing about investing, and most had never heard the word alpha. I would ask them things on what I was learning and they were clueless – Citi/Smith Barney/Chase/City National. I met only one person in all that time that I felt was knowledgeable.

    I first read the Intelligent Investor this past summer, and I am on my second reading now while I flash card it. I am passionate about investing, but at 37, I don’t have too much experience actually trading. I have done most of my investing (aside from real estate) in my company retirement accounts, and they only offer various mutual funds. I recently started taking the reins and have been moving to EFTs and very few equities. I am an aspiring enterprising investor, but I should play in the defensive category mostly. I am one that gets paralysis by analysis, and my indecision tends to take me too long to make a move.

    Graham would stick with his suggestion of 50/50 equity to bond mix in this interest rate environment. The point he put forth was to not make decisions based on what the economy was doing. This is for the ultra-defensive investor who does not want to take any active role. Statistically, in the long run it will average out, and they will not take any risk of emotion driven changes without a thorough analysis. I would assume that he would advocate shorter maturity bond holdings to account for the potential higher interest rate environment if you were so inclined to be more active.

    Graham stresses that everyone can invest because at a minimum we can all do the defensive portfolio with simple EFT’s (assuming you can accept that minimum level of risk). Everyone should save money and having it in bank deposits will not provide any significant doubling periods (rule of 72).

    Lastly, I think foresight has some value even though many investors are already expecting the same thing. It is really costly and hard to gather all possible information, effectively analyze it, and act upon it – we are coming to your website because it is hard. Semi Strong Form Efficiency of the markets is something I think exists. There are a few chosen investors that have insider information, and they get to act on it at the very instant it is public, and they can plan ahead for that vary instant to be prepared – politicians. They are the first to hear of many things, and their portfolios on average have statistically significant superior alpha compared to the rest of the public.

    Thank you again for this forum. I am going to read the introduction and first chapter again this weekend.

    Reply
    1. Benjamin Clark Avatar
      Benjamin Clark

      John – Thanks for joining us! It sounds like you have a good base of experience to draw from that will add to our discussion as we read through the book.

      I agree that the market is semi-strong efficient!

      Reply
  12. CJP Avatar
    CJP

    Hello Ben and Heather. Your website project is interesting and valuable. A book club for the Intelligent Investor is a great idea. As it happens, I am reading currently reading the book for the 2nd time (Chapter 18) Graham’s formal writing style makes it a tough read, so I am thrilled to find folks with similar interests to lighten the load. In reading the comments so far, I think your broad audience cross section will make for interesting discussions.
    1. As a long time amateur Investor these are life lessons I bring to this discussion
    Investing Life lesson 1- Stocks go down
    I have been interested in investing since 1984 when I subscribed to a correspondence course on the topic, though I did not invest until October of 1987, just a couple of days before the stock market crash that year. Fortunately, I had conservatively bought into a bond fund, and I did not lose my meager life savings.

    Investing Life lesson 2- Don’t trust what brokers say
    I had learned from the course to stick with “value” and kept my investments to value mutual funds until 1999, when a broker’s rep finally convinced me I was missing the “momentum” market and sold me a great opportunity in Lucent- a newsworthy telecom you may remember which promptly went south, losing nearly all of its value.

    Investing Life Lesson 3- Conservative investing works, don’t sell in the dips
    The last 14 years have been equally educational. Between 2000 and 2007, I lost interest in investing, but made substantial regular contributions to Vanguard index funds and company match stock. These passive investments had grown radically up to 2008-09

    Investing Life Lesson 4- 100% Stocks only feels good when they are high, when they have fallen it feels like lost opportunity
    I was 100% in stocks and stock fundsduring the crash of 2008-2009, Not wanting to sell at the bottom, I made only minor adjustments to eventually see them return to the previous highs before the end of 2012. The lesson learned at this point was the importance of balance, keeping powder dry to be ready for opportunities.
    In the depths of February and March of 2009 there were so many opportunities available pennies on the dollar… but I had no cash to invest. I also realized that I didn’t have the skills to identify which companies had a solid foundation and which were likely to crumble, and I began to really notice what Warren Buffett was saying.

    2. I believe that success leaves clues so I studied Buffett’s background and he led me to Benjamin Graham, who he says changed his life by changing the way he looked at investments.

    Studying Buffett I heard a term that had been missing from my mottled financial education. “Intrinsic Value” should be the first term learned when considering investing. I want to internalize that benchmark concept so I instinctively look at the value of the business, and then look to see if the price is right.

    3. Two pieces of the introduction were most interesting. The inability of analysts to identify calamity even as it approaches. Graham notes that 2 months before the outbreak of the first world war, the experts on Wall Street did not see it coming, and that obviously important technological developments(airlines, computers) do not necessarily translate to profitable investments

    4. One is ruled by instinct when he has insufficient information and training to make a contrary decision. Almost invariably. In the past, my best strategy seems to have been to forget I have investments. However, while that non-strategy prevents hyper-activity, It also leads to missed opportunities.

    5. At the time this is written in early 2014 when stock prices are near all time highs, with his emphasis on capital protection, I believe Graham would be moving closer to a 50-50 split emphasizing shorter term debt securities.

    6. Between his Defensive and Enterprising positions, Graham describes opportunities where anyone can participate in the growth of the economy. Additional gains can be made by enterprising investors by careful study of public documents to understand the longer term opportunities of specific entities.

    7. I have been most successful as a defensive investor in the past, but as I said, the tools to do otherwise have been missing.

    8. There is always opportunity, in any endeavor, to find a different, more successful, path. That’s the nature of evolution The market is moved by a relative handful of managers seeking results for billions of dollars under management. Their focus has to be to optimize the short to medium term results that will not fall into the dreaded bottom 50% of their competitive category. Under these parameters, money managers can’t make large scale movements into ventures they may have difficulty explaining at year end. This leaves a convenient longer term niche for those willing to “do the work” and stand by their convictions.

    Reply
    1. Benjamin Clark Avatar
      Benjamin Clark

      CJP – I’m glad you can join us! It’s so great that there are a lot of people with broad experiences with us and I’m really looking forward to the discussions as we read through the book. I absolutely agree that a greater emphasis needs to be put on value investing in schooling. I spent only a little bit of my education talking about Graham’s methods, which is why I felt compelled to begin this site and make sure the methods are still taught to investors today.

      Reply
  13. Amy Avatar
    Amy

    Hello Ben and Heather. I am an intelligent woman who has allowed other people to manage her investments for years. It is time for me to understand financials so that I can buy and sell intelligently. I have bought the book and am working my way through the introduction.

    Reply
    1. Benjamin Clark Avatar
      Benjamin Clark

      Amy – thanks for joining us! I hope you will find this book very interesting.

      Reply
  14. Larry Avatar
    Larry

    My name is Larry. I am 65 and retired. My background is in engineering management. I have 35 years of investing experience. I have 10 years of experience investing in individual stocks.

    One of the points the author made is that one of the chief requirements is that we should limit ourselves to issues selling not far above their tangible asset value. I find this difficult to achieve in practice. I checked the stocks I have and a few of the utilities come closest to meeting this requirement.

    Reply
    1. Benjamin Clark Avatar
      Benjamin Clark

      Larry – I’m glad you’re able to join us for the book club. It is very difficult to find companies trading not far above their tangible asset value, which I think is why Graham provides other guidelines as well. There are other value opportunities that do not necessarily meet the tangible asset requirement but are still good investments.

      Reply
  15. Marko Avatar
    Marko

    1. My name is Mark, but I go by Marko in some circles and will use that handle to distinguish myself from the other Mark. I’m 54, R&D manager at an electronics company. I read The Little Book of Value Investing by Browne, and Seth Klarmann’s Margin of Safety. Actually the first book on Value Inv I read was the bio of Ben Graham “The Einstein of Money.” I never had much luck over time with investing, mostly – I can see now – due to lacking a working model of how to understand how to invest. I just bought the 4th ed of Intelligent Investor so I could pace myself with the book club.
    2. I expect to get the confidence to start making some investments based on valuations that I believe in. I currently only have about 10% of my dough invested, the rest is in cash.
    3. Two main concepts I came away with are 1. The underlying principles of sound investing do not change over time, and 2. Be cautious with my emotions and enthusiasm.
    4. One of the things I’ve done in past cycles is Stop Loss sell orders on stocks I had after I felt I’d made a good tangible on-paper return. I typically adjust it every Friday night so the loss floor is 5% below the week’s close. It took my emotion or self-doubt out of the equation and really saved my gains during inevitable selloff periods. In the future I want to develop the discipline to “swing at the right pitch” when I buy. I might still use the stop loss after I see my holdings overvalued.
    5. My feeling is Graham wouldn’t be too excited about bonds right now. But to the extent that he wanted to invest it would be heavily weighted to equities. Myself – I’m keeping my powder dry until I have a handle on some analysis and screening methods. Being in cash hasn’t paid off the last 15 months, but I’m glad I at least haven’t invested unintelligently.
    6. Graham believed that anyone could make his own investment decisions and should take charge of his own financial future – or trust investment decisions to someone who applies the value philosophies. There’s not really anything superior about the opinions of analysts and media mavens.
    7. Like the other Mark I need to carefully make up for lost time. I lean enterprising.
    8. I don’t think one needs instant communication to invest successfully. One needs the free access to information and a framework for screening, analyzing and making buy/sell decisions. Foresight is a rare thing. Better to buy a dollar for 50 cents on a defensible valuation.

    Reply
    1. Heather Clark Avatar
      Heather Clark

      Marko – thanks for joining us! I think is great that you are trying to ensure your investments are done intelligently. Having money is cash is certainly better than losing money though bad investments. Looking forward to having you learn with us and find the framework that works best for you.

      Reply
    2. Mark Avatar
      Mark

      Hi Marko,
      What did you think of “The Einstein of Money”? I am considering buying it.

      Reply
  16. Chuck Wise Avatar
    Chuck Wise

    I am 62 years old had have been investing for many years. I read publications such as Money magazine and IBD. I also read Zacks investment advisory and Stansberry’s news letter. I need to understand why certain stocks are considered a good investment while others are not. I find it interesting that of all the things I read I have yet to find a stock that is considered to be a good investment mentioned on more than one publication.
    It is my understanding that Ben Graham and his method of stock evaluation I’d “top notch” and is one which I need to learn and understand.
    Please advise

    Reply

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