The Intelligent Investor book, or as quoted by the Warren Buffett ” the Bible of investment”, is by far considered as the best book ever written on investing strategies. Written by the legendary investor Benjamin Graham who also mentored Warren Buffett.
First published in 1949, it is a widely acclaimed book that brings the general public closer to the art of investing mindfully, every single year. There are tons of great and popular public figures that have listed this book again and again in their book recommendation and want everyone to start investing smartly.
It is all about investment principles and the investor’s attitudes. In the Intelligent Investor book, Benjamin talks about teaching three things:
1. How to minimize the chances of suffering irreversible losses.
2. To maximize the chance of achieving sustainable wins.
3. How to overcome self-defeating modes of thought that often prevent investors from reaching their full potential.
Let’s take a more detailed approach to what The Intelligent Investor book explains and what other important points are mentioned in the book.
1. Aggressive v/s Defensive Investor – The Intelligent Investor Book
In the book, Graham talks about two types of investing mindset or attitude. For instance, think about two friends one with an aggressive investing strategy and the other with a defensive investing strategy. The one with the aggressive strategy invests his money in companies or stocks which are supposed to give him high returns in a short time and for that he’s ready to take bigger risks also.
Whereas the one with a defensive investing strategy invests his money mostly in the mutual funds and stocks which does not give him high returns but risks associated with them are very less. At the end of their investing time when both the friends compare their returns the one with the aggressive strategy gets a higher return from one of his investments but he also had to face higher losses in the rest of his investments.
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While the defensive one got average returns on his but his losses were very minimal and calculated. One might think that the aggressive strategy is a good way to get some big money but here’s the catch, according to Benjamin Graham in a long run defensive investing strategy is what one should go for as the aggressive strategy is almost like gambling high returns but also with a high-risk factor.
2. Mr. Market – The Intelligent Investor Book
Another one of the exciting and fascinating concepts of the share market is Mr. Market. Consider a hypothetical situation in which you own a business and you have a friend named Mr. Market, one peculiar thing about this guy is that he’s bipolar. So Mr. Market visits you every day and offers to buy your business or sell you his, but he never forces you to do so, he just shows you an opportunity.
At any good day when Mr. Market is pleased and optimistic, he will offer you 2 times what your business’s actual market value is. On his bad days when he is grumpy and pessimistic he won’t offer you even half the value of your business even if you showed a positive tangent in the recent quarter.
So the thing which Benjamin tried to explain here is the market can be very rude sometimes and at the times can be a fairy tale. So if Mr. Market is happy and giving you an unrealistic deal just grab it. And if he is being rude and giving you an undervalued offer just hold on for some time.
3. Defensive Investor or Passive Investor
Benjamin Graham always suggests people become a defensive investor, these are the investors who play long and play safe. Usually, people don’t have that much time to do detailed research on a company and predict its slope and to decide when to invest in it and when to sell it. Keep your expectations low and have some patience, these two things are majorly stressed in the intelligent investor book.
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While these are some of the basic points which are suggested in The Intelligent Investor book by Benjamin Graham there are tons of other great things that the author talks about. This includes some tricks to be mindful about, some predictions, and the basic gist of it all is to believe your gut too, at times.