The Intelligent Investor Book - Quick Summary and It's Core Fundamentals

The Intelligent Investor

     If you ask me one thing, which can make you very rich so for it I will say that you need to become a good investor now if you say that you are not an investor. Then, I will say nope that’s not true because we all are investors, some invest money, some invest their time and enjoy doing jobs or businesses. 


     At a deeper level, we all invest something to earn money. Hence it is important for us to be a great investor and if I keep this philosophical talk aside, if you want to be rich then you have to invest at any moment in your life, either you earn by doing the job or by doing a business. Hence it is very important for you to be an Intelligent Investor.

     If you ask me anyone book related to investing which you should must-read then I will say “THE INTELLIGENT INVESTOR.”    This is not only my personal opinion the same thing is also by Warren Buffet, who is the 3rd richest person in the world of 2018. In fact, he is still considered one of the best investors in the world. Warren Buffet says, that Intelligent Investor is the best investing book and this book is written by his mentor Benjamin Graham, he learned from him and became so successful and rich today not only Warren Buffet but investor Gurus also considered these books as an Investing Bible. Truly, this is one of the best books, therefore today I will share the core fundamentals of these books which you can understand easily and can become a great investor and a successful person.

     The Core Fundamentals of  "The Intelligent Investor" Book as Follows:

     1.   Aggressive vs Defensive

     Suppose there are two friends both wanted to become rich hence they invest money. There are many similarities in both of them, both are intelligent, has almost the same wealth but the only difference they have is that one is an Aggressive investor and the other friend is a Defensive Investor, one friend believes the more we take the risk the more we earn. Therefore he invests in stocks which gives high returns whether the company has any reputation or not that doesn’t worry him whereas the Defensive friend is exactly the opposite of him he invests only on those stocks and mutual funds where he can get returns at the lower risk even if returns are average, he is fine with it.
     Now one day Aggressive investor meets his Defensive investor friend and tells him that he has got a 60% profit on his one stock, to which his defensive investor friend thinks oh… even after combining all four investment of mine, I haven’t got this much profit which he has got in one stock now after this much story if we judge then obviously all will say that Aggressive Investment is better, but is we see both investment in detail only then we will know the real truth. 

     Defensive Friend had made four investments in four months and in all four investments he had invested 10k for which he has got 5% profit in his first investment, in the second investment he faced 2% loss, in the third he got 12% profit and in last he got of 20% profit. In total he got 43,500 rupees, that is 8.75% profit.

      Now this isn’t the best returns but lets first check Aggressive Investor profit and loss. He invested in 8 different stocks cost 40k in 4 months in first he faced 50% of loss, in the second stock he had 60% profit about which he was talking to his Defensive Friend, in third stock he got 5% profit and in 4th he faced a 10% loss and this way after facing profit and loss in all stocks the amount which he got was 40,800 rupees that is, he got just 2% profit, and this is the problem of Aggressive Investment  because with high returns there is also a high chance of high loss which eventually destroys the profit in the long run.

     It is exactly like gambling where you will win for once but will lose so many times that your life can be devastated. Benjamin sets its an investing fact that in low risk you will get low rewards and the moment you think of high rewards the risk factor also becomes high but maximum time low rewards are better than taking a high risk.

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     2.   Mr. Market

     An interesting concept which Benjamin has shared in his book is- Share Market’s Mr. Market concept, suppose you are an owner of a business and you have a partner named Mr. Market. Now Mr. Market comes to your home and gives you different – different offers you can either buy his business or can sell yours. Now an interesting thing, Mr. Market is a very Emotional Person he is normal but in the flow of emotion he something gives more than value. 

     Example: Suppose your Business Intrinsic value is Rs.1000/- but Mr. Market doesn’t care about it when Mr. Market is happy he is ready to give Rs.2000/- but when he is upset then for Rs.1000/- business he is not even ready to give 500. But the best part is Mr. Market never force, he will never force you to buy or sell your business at any price he just gives an opportunity. 

     Now this parable is simple and very deep because the stock market run by Mr. Market is not logical always, in fact, changes as per the people’s emotions and sell things to people in lesser or at higher prices of its actual value. 

     Therefore, Benjamin says that if you want to be an Intelligent Investor then do business with Mr. Market when he is selling a business less than its actual value and sell when you are getting more than your actual business value.

       3.  Defensive Investor

     These are the investor also is known as Passive Investors. Means who do very less trading. Benjamin Graham usually ask people to be a Defensive Investors because the fact is many people don’t have enough time to do research on the one-one company and then study them and then come to a decision when to buy or sell the stocks. Therefore even I will suggest you be a Defensive Investors who play long term and play safe. Now I will share 9 fundamentals that will help you to become a Great Defensive Investor.

    To be defensive investor divide your portfolio in 50-50%.

Example: If you have 1000 rupees to invest then invest 500 on stocks and keep 500 in bonds or cash or investing options and maintain this 50-50% ratio. Suppose if you get a 10% profit on stock and you have 60% money on stocks then remove 10% from it and again maintain 50-50% ratio and do it on a specific means invest in the month start when you get your salary will have less risk with the help of the concept as Dollar Cost Average there are 8 more things on which Defensive Investors must focus, I will share it in short;

i] Diversification -

Means invest in 10 to 20 companies that to in different-different industries.

ii] Large Companies -

Invest in big companies which are established for several years?

iii] Conservatively Financed -

 Invest in companies that are conservatively financed whose current ratio should be 200%. Companies whose assets should be more than its liabilities.

iv] Dividend History -

Invest in companies which are giving dividends continuously from 10-20 years.

v] Earning History -

Invest in companies which did not have to earn a deficit from the last 10-20 years.

vi] Growth -

Invest in companies which are growing with 3% every year from 10 years.

vii] Cheap Assets -

Invest in companies whose stock price should not more than 1.5% times from its Net Asset Value.

viii] Cheap Earning - 

     Don’t give much for earning means whose P.E. ratio is less than 15 for the last one year buy those. Now many can find this very complicated hence there is an easy alternative too known as low-risk mutual funds and index funds.

     Now if you can be happy with an average returns by keeping your expectations low which is taught to us by Benjamin and Warren then these three points along with the last point are important, but still, want to go to high returns then 4th point will help you.

4.   Enterprising Investors : 

         Actually there are three types of investors first-Defensive, second – Aggressive about which I have already discussed and the third type is Enterprising investors, it comes in between defensive and aggressive. Enterprising Investors don’t want an average returns like defensive investors nor they take a risk on the basis of illogical speculation like Aggressive Investors. In fact, they are the ones who do a lot of research and invest their lot of time and then do investment. They are actually very active and hence usually they are the ones who able to beat the market by showing amazing results, but the problem is to be such investors there’s a need of a lot of research and efforts and along with these two there should be 4 more things in such investors i.e.

 First: Patience,
 Second: Discipline,
 Third: Eagerness to learn,
 Forth:  A lot of time.

Normally people fail to do this hence Benjamin recommends its better to be a Defensive Investor. If a person wants to be an enterprising investor, then it can be done through 4 activities.

1st Go against the market -

Means to buy when others are buying & when the market is down and to sell when the market is good and others are buying and this should be done by investing his minimum 25% to max 75% money compared to 50-50% ratio which Defensive Investor does.

2nd Buying Growth Stocks -

To buy a growth stocks an investor should buy a company that is big but not popular.

3rd Buying Bargain Stocks -

Bargain stocks are those stocks which are sold in less than its intrinsic value reason can be any try to get such companies which you get in less amount but should be well established.

4th By Buying Special Cases -

 Here those small companies stocks will come which big companies are going to acquired.

         5.  The margin of Safety: 

         Suppose a ship writer wants to make a ship which should handle 50 people’s weight, now for this, he won’t create a ship which only carries 50 people’s weight instead he will make that a ship so strong  that it will be able to handle 50 or 100 people’s weight. He will do that because by that there will be a safety that ship won’t sink now the consideration of this extra weight is known as Margin of safety same thing even you should consider while investing you must be aware that the price of a stock in the stock market is not as same as its real value. 

         Hence by keeping a margin of safety in mind, Benjamin recommends not to give more than 2/3rd of its value see maximum people’s problem is that they buy $50 value stock in $50 only and expect that its price will rise in the future and it will benefit them. However an Intelligent Investor is who keep a margin of safety and buy that 50 dollar stock in 40 dollars and get profit immediately after buying it and don’t need to be depend on the market 

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