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The Intelligent Investor: The Definitive Book on Value Investing (Paperback)
by Benjamin Graham, Jason Zweig
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Investing, Value investing, Stock investing, Investment |
| Market price: ¥ 230.00
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First published in 1934, The Intelligent Investor is an all-time classic on value investing. |
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Author: Benjamin Graham, Jason Zweig
Publisher: Collins, Revised edition
Pub. in: October, 2005
ISBN: 0060555661
Pages: 640
Measurements: 7.9 x 5.6 x 1.5 inches
Origin of product: USA
Order code: BA00141
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- Awards & Credential -
The world's greatest investor Warren Buffet made it: "By far the best book on investment ever written." |
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- MSL Picks -
In 1934, in the midst of the great depression, Benjamin Graham published the first edition of The Intelligent Investor. In it, he maintained that the average investor could learn to analyze a company and arrive at its "real" value. By paying less than the calculated "real" value, an investor was sure to make a profit. It was a bold move at the time. Common stocks were thought to be one step removed from gambling and reckless speculation; to maintain that they could actually be investments was thought to be absurd.
Almost seventy years later, The Intelligent Investor still stands as one of the cornerstones of value investing. It has been through several editions and reprints, each slightly different and worth owning.
Among the library of investment books promising no-fail strategies for riches, Benjamin Graham's classic, The Intelligent Investor, offers no guarantees or gimmicks but overflows with the wisdom at the core of all good portfolio management.
The hallmark of Graham's philosophy is not profit maximization but loss minimization. In this respect, The Intelligent Investor is a book for true investors, not speculators or day traders. He provides, "in a form suitable for the laymen, guidance in adoption and execution of an investment policy" (1). This policy is inherently for the longer term and requires a commitment of effort. Where the speculator follows market trends, the investor uses discipline, research, and his analytical ability to make unpopular but sound investments in bargains relative to current asset value. Graham coaches the investor to develop a rational plan for buying stocks and bonds, and he argues that this plan must be a bulwark against emotional behavior that will always be tempting during abrupt bull and bear markets.
Since it was first published in 1949, Graham's investment guide has sold over a million copies and has been praised by such luminaries as Warren E. Buffet as "the best book on investing every written." These accolades are well deserved. In its new form - with commentary on each chapter and extensive footnotes prepared by senior Money editor, Jason Zweig - the classic is now updated in light of changes in investment vehicles and market activities since 1972. What remains is a better book. Graham's sage advice, analytical guides, and cautionary tales are still valid for the contemporary investor, and Zweig's commentaries demonstrate the relevance of Graham's principles in light of 1990s and early twenty-first century market trends.
Target readers:
Value investors, investment consultants, Buffett fans, and anyone else who is interested in personal finance and stock investing.
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Benjamin Graham
Jason Zweig is a senior writer at Money magazine.
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From Publisher
The Intelligent Investor is the best book ever written for the stockholder' says the author and investment counselor John Train. Benjamin Graham's classic work offers sound and safe principles for investing - principles that have worked for more than forty years since the first edition was published. With an introduction and appendix by Warren Buffet, one of Graham's most famous students in investing strategy, this book takes account of both the defensive and the enterprising investor.
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Introduction: What This Book Expects to Accomplish
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; attention will be paid chiefly to investment principles and investors' attitudes. We shall, however, provide a number of condensed comparisons of specific securities - chiefly in pairs appearing side by side in the New York Stock Exchange list - in order to bring home in concrete fashion the important elements involved in specific choices of common stocks.
But much of our space will be devoted to the historical patterns of financial markets, in some cases running back over many decades. To invest intelligently in securities one should be forearmed with an adequate knowledge of how the various types of bonds and stocks have actually behaved under varying conditions - some of which, at least, one is likely to meet again in one's own experience. No statement is more true and better applicable to Wall Street than the famous warning of Santayana: "Those who do not remember the past are condemned to repeat it."
Our text is directed to investors as distinguished from speculators, and our first task will be to clarify and emphasize this now all but forgotten distinction. We may say at the outset that this is not a "how to make a million" book. There are no sure and easy paths to riches on Wall Street or anywhere else. It may be well to point up what we have just said by a bit of financial history - especially since there is more than one moral to be drawn from it. In the climactic year 1929 John J. Raskob, a most important figure nationally as well as on Wall Street, extolled the blessings of capitalism in an article in the Ladies' Home Journal, entitled "Everybody Ought to Be Rich." His thesis was that savings of only $15 per month invested in good common stocks - with dividends reinvested -- would produce an estate of $80,000 in twenty years against total contributions of only $3,600. If the General Motors tycoon was right, this was indeed a simple road to riches. How nearly right was he? Our rough calculation - based on assumed investment in the 30 stocks making up the Dow Jones Industrial Average (DJIA) - indicates that if Raskob's prescription had been followed during 1929-1948, the investor's holdings at the beginning of 1949 would have been worth about $8,500. This is a far cry from the great man's promise of $80,000, and it shows how little reliance can be placed on such optimistic forecasts and assurances. But, as an aside, we should remark that the return actually realized by the 20-year operation would have been better than 8% compounded annually - and this despite the fact that the investor would have begun his purchases with the DJIA at 300 and ended with a valuation based on the 1948 closing level of 177. This record may be regarded as a persuasive argument for the principle of regular monthly purchases of strong common stocks through thick and thin - a program known as "dollar-cost averaging."
Since our book is not addressed to speculators, it is not meant for those who trade in the market. Most of these people are guided by charts or other largely mechanical means of determining the right moments to buy and sell. The one principle that applies to nearly all these so-called "technical approaches" is that one should buy because a stock or the market has gone up and one should sell because it has declined. This is the exact opposite of sound business sense everywhere else, and it is most unlikely that it can lead to lasting success on Wall Street. In our own stock-market experience and observation, extending over 50 years, we have not known a single person who has consistently or lastingly made money by thus "following the market." We do not hesitate to declare that this approach is as fallacious as it is popular. We shall illustrate what we have just said -- though, of course this should not be taken as proof - by a later brief discussion of the famous Dow theory for trading in the stock market.
Since its first publication in 1949, revisions of The Intelligent Investor have appeared at intervals of approximately five years. In updating the current version we shall have to deal with quite a number of new developments since the 1965 edition was written. These include:
- An unprecedented advance in the interest rate on high-grade bonds.
- Fall of about 35% in the price level of leading common stocks, ending in May 1970. This was the highest percentage decline in some 30 years. (Countless issues of lower quality had a much larger shrinkage.)
- A persistent inflation of wholesale and consumer's prices, which gained momentum even in the face of a decline of general business in 1970.
- The rapid development of "conglomerate" companies, franchise operations, and other relative novelties in business and finance. (These include a number of tricky devices such as "letter stock, proliferation of stock-option warrants, misleading names, use of foreign banks, and others.)
- Bankruptcy of our largest railroad, excessive short-and long-term debt of many formerly strongly entrenched companies, and even a disturbing problem of solvency among Wall Street houses.
- The advent of the "performance" vogue in the management of investment funds, including some bank-operated trust funds, with disquieting results.
These phenomena will have our careful consideration, and some will require changes in conclusions and emphasis from our previous edition. The underlying principles of sound investment should not alter from decade to decade, but the application of these principles must be adapted to significant changes in the financial mechanisms and climate.
The last statement was put to the test during the writing of the present edition, the first draft of which was finished in January 1971. At that time the DJIA was in a strong recovery from its 1970 low of 632 and was advancing toward a 1971 high of 951, with attendant general optimism. As the last draft was finished, in November 1971, the market was in the throes of a new decline, carrying it down to 797 with a renewed general uneasiness about its future. We have not allowed these fluctuations to affect our general attitude toward sound investment policy, which remains substantially unchanged since the first edition of this book in 1949.
The extent of the market's shrinkage in 1969-70 should have served to dispel an illusion that had been gaining ground during the past two decades. This was that leading common stocks could be bought at any time and at any price, with the assurance not only of ultimate profit but also that any intervening loss would soon be recouped by a renewed advance of the market to new high levels. That was too good to be true. At long last the stock market has "returned to normal," in the sense that both speculators and stock investors must again be prepared to experience significant and perhaps protracted falls as well as rises in the value of their holdings.
In the area of many secondary and third-line common stocks, especially recently floated enterprises, the havoc wrought by the last market break was catastrophic. This was nothing new in itself -- it had happened to a similar degree in 1961-62 - but there was now a novel element in the fact that some of the investment funds had large commitments in highly speculative and obviously overvalued issues of this type. Evidently it is not only the tyro who needs to be warned that while enthusiasm may be necessary for great accomplishments elsewhere, on Wall Street it almost invariably leads to disaster.
The major question we shall have to deal with grows out of the huge rise in the rate of interest on first-quality bonds. Since late 1967 the investor has been able to obtain more than twice as much income from such bonds as he could from dividends on representative common stocks. At the beginning of 1972 the return was 7.19% on highest-grade bonds versus only 2.76% on industrial stocks (This compares with 4.40% and 2.92% respectively at the end of 1964.). It is hard to realize that when we first wrote this book in 1949 the figures were almost the exact opposite: the bonds returned only 2.66% and the stocks yielded 6.82%. In previous editions we have consistently urged that at least 25% of the conservative investor's portfolio be held in common stocks, and we have favored in general a 50-50 division between the two media. We must now consider whether the current great advantage of bond yields over stock yields would justify an all-bond policy until a more sensible relationship returns, as we expect it will. Naturally the question of continued inflation will be of great importance in reaching our decision here. A chapter will be devoted to this discussion.
In the past we have made a basic distinction between two kinds of investors to whom this book was addressed - the "defensive" and the "enterprising." The defensive (or passive) investor will place his chief emphasis on the avoidance of serious mistakes or losses. His second aim will be freedom from effort, annoyance, and the need for making frequent decisions. The determining trait of the enterprising (or active, or aggressive) investor is his willingness to devote time and care to the selection of securities that are both sound and more attractive than the average. Over many decades an enterprising investor of this sort could expect a worthwhile reward for his extra skill and effort, in the form of a better average return than that realized by the passive investor. We have some doubt whether a really substantial extra recompense is promised to the active investor under today's conditions. But next year or the years after may well be different. We shall accordingly continue to devote attention to the possibilities for enterprising investment, as they existed in former periods and may return.
Chapter One
Investment versus Speculation: Results to Be Expected by the Intelligent Investor
This chapter will outline the viewpoints that will be set forth in the remainder of the book. In particular we wish to develop at the outset our concept of appropriate portfolio policy for the individual, nonprofessional investor.
Investment versus Speculation
What do we mean by "investor"? Throughout this book the term will be used in contradistinction to "speculator." As far back as 1934, in our textbook Security Analysis, we attempted a precise formulation of the difference between the two, as follows: "An investment operation is one which, upon thorough analysis promises safety of principal and an adequate return. Operations not meeting these requirements are speculative."
While we have clung tenaciously to this definition over the ensuing 38 years, it is worthwhile noting the radical changes that have occurred in the use of the term "investor" during this period. After the great market decline of 1929–1932 all common stocks were widely regarded as speculative by nature. (A leading authority stated flatly that only bonds could be bought for investment.) Thus we had then to defend our definition against the charge that it gave too wide scope to the concept of investment.
Now our concern is of the opposite sort. We must prevent our readers from accepting the common jargon which applies the term "investor" to anybody and everybody in the stock market. In our last edition we cited the following headline of a front-page article of our leading financial journal in June 1962:
SMALL INVESTORS BEARISH, THEY ARE SELLING ODD-LOTS SHORT
In October 1970 the same journal had an editorial critical of what it called "reckless investors," who this time were rushing in on the buying side.
These quotations well illustrate the confusion that has been dominant for many years in the use of the words investment and speculation. Think of our suggested definition of investment given above, and compare it with the sale of a few shares of stock by an inexperienced member of the public, who does not even own what he is selling, and has some largely emotional conviction that he will be able to buy them back at a much lower price. (It is not irrelevant to point out that when the 1962 article appeared the market had already experienced a decline of major size, and was now getting ready for an even greater upswing. It was about as poor a time as possible for selling short.) In a more general sense, the later-used phrase "reckless investors" could be regarded as a laughable contradiction in terms - something like "spendthrift misers" - were this misuse of language not so mischievous.
The newspaper employed the word "investor" in these instances because, in the easy language of Wall Street, everyone who buys or sells a security has become an investor, regardless of what he buys, or for what purpose, or at what price, or whether for cash or on margin. Compare this with the attitude of the public toward common stocks in 1948, when over 90% of those queried expressed themselves as opposed to the purchase of common stocks. About half gave as their reason "not safe, a gamble," and about half, the reason "not familiar with." It is indeed ironical (though not surprising) that common-stock purchases of all kinds were quite generally regarded as highly speculative or risky at a time when they were selling on a most attractive basis, and due soon to begin their greatest advance in history; conversely the very fact they had advanced to what were undoubtedly dangerous levels as judged by past experience later transformed them into "investments," and the entire stock-buying public into "investors."
The distinction between investment and speculation in common stocks has always been a useful one and its disappearance is a cause for concern. We have often said that Wall Street as an institution would be well advised to reinstate this distinction and to emphasize it in all its dealings with the public. Otherwise the stock exchanges may some day be blamed for heavy speculative losses, which those who suffered them had not been properly warned against. Ironically, once more, much of the recent financial embarrassment of some stock-exchange firms seems to have come from the inclusion of speculative common stocks in their own capital funds. We trust that the reader of this book will gain a reasonably clear idea of the risks that are inherent in common-stock commitments - risks which are inseparable from the opportunities of profit that they offer, and both of which must be allowed for in the investor's calculations.
What we have just said indicates that there may no longer be such a thing as a simon-pure investment policy comprising representative common stocks - in the sense that one can always wait to buy them at a price that involves no risk of a market or "quotational" loss large enough to be disquieting. In most periods the investor must recognize the existence of a speculative factor in his common-stock holdings. It is his task to keep this component within minor limits, and to be prepared financially and psychologically for adverse results that may be of short or long duration.
Two paragraphs should be added about stock speculation per se, as distinguished from the speculative component now inherent in most representative common stocks. Outright speculation is neither illegal, immoral, nor (for most people) fattening to the pocketbook. More than that, some speculation is necessary and unavoidable, for in many common-stock situations there are substantial possibilities of both profit and loss, and the risks therein must be assumed by someone. There is intelligent speculation as there is intelligent investing. But there are many ways in which speculation may be unintelligent ...
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Warren Buffet (MSL quote), USA
<2006-12-28 00:00>
By far the best book on investment ever written. |
Andrew Tobias (MSL quote), USA
<2006-12-28 00:00>
There have been other good books written about money since 1841, but only a few hold up. The best known and most likely to make you money is The Intelligent Investor. |
John Train (Author of The Money Masters) (MSL quote), USA
<2006-12-28 00:00>
Graham ranks as this century's (and perhaps history's) most important thinker on applied portfolio investment. |
L. Masonson (MSL quote), USA
<2006-12-28 00:00>
When I first came across the first edition of this book in my local library in 1959, I was a teenager. Back in those days there were only a handful of books about the stock market. And I've read all of them during my junior high and high school years.
This latest updated 623-page paperback (the index alone is 33 pages) version updated by Jason Zweig is a welcome addition to this classic. The original chapters are intact, but with footnoted comments by Zweig. Moreover, he provides his own commentary on each chapter contents in a separate chapter following each original chapter. He provides extensive research, charts, tables and commentary that updates the book to the present years. He is not afraid to take on the big guns of Wall Street and show how wrong they were in some of their extremely bullish predictions during January-March 2000, when the market was at its peak.
The first nine chapters cover investing basics that all investors could benefit from. There are many truisms spouted on Wall Street that are not really true. These chapters provide the investor with a realistic picture of how Wall Street works and what investors need to do to come out ahead.
Chapters 10-20 focus strictly on fundamental analysis, stock selection, convertible issues and warrants, and other subjects. Investors who plan to invest directly in stocks should make sure to read these chapters. However, for readers more interested in investing in mutual funds, and in particular index funds, they need not concern themselves with all the detail in these chapters unless they have the time or interest in the subject matter presented.
In conclusion, the combination of pioneer Ben Graham’s original work coupled with Zweig’s meticulous and enjoyable update, make this a remarkable book about investments and investor behavior that every new and experienced investor should read. Of the 500 investing books that I’ve read, this one certainly is one of the greats of all time. |
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