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Investment insights from the intelligent investor - part one

The intelligent investor by Benjamin Graham is considered in high regard when it comes to value investing. As Warren Buffett puts it, "By far the best book on investing ever written."

The intelligent investor is an essential read for anyone starting out on their investment journey. It is not a get rich quick book but rather a book on rational thinking about investment.

It helps in critical thinking about your investment choices and asks you to be sceptical about generalizations in the field and helps you avoid the pitfalls of blind investing.

The Intelligent investor by Benjamin Graham. Recommendation by Warren Buffett.
Image for representational purpose only. Source - Google Images

In this series of articles on the insights from the intelligent investor (Revised edition, with commentary by Jason Zweig), we look at the key takeaways from the book, that remain relevant to our times.

  1. Stock price should not be far above the tangible asset value (book value).
  2. For a defensive investor - ratio of investment between stocks and bonds - varies from 25% to 75% depending on market conditions. When stock price fall and become attractive, raise it to 75% in stocks and vice versa. Albeit, 50-50 ratio is the simplest approach.
  3. Don't panic when stock prices fall. Think of stocks like groceries, the cheaper they become, the better time it is to buy them.
  4. Do the opposite, buy when markets are low (unjustified pessimism) and sell when dangerously high, extreme optimism (irrational exuberance).
  5. For a defensive investor investing between stocks and bonds, 7.8% pre tax or 5.5% estimated post tax is expected to be reasonable.
  6. Stay away from speculation. Know the difference between speculation and investing.
  7. Don't put more than 10% of your wealth into your speculative investment (the lesser the better), if it can't be avoided. Never mix speculation and investing.
  8. Stock prices cannot be predicted and high returns cannot be guaranteed.
  9. Measure your investment success not just by what you make but by how much you keep after inflation.
  10. Never put all your investments in one basket, diversify overall investments while minimizing risk by diversifying within the stock portfolio as well.

Click here for more investment insights in the next blog in the series on the intelligent investor.

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