A classic volume about value investing
Ask Warren Buffet, one of the great financial investors in the world, what book a newcomer in the stock market should read. Then, he will be sure to pick up this book, “The Intelligent Investor.”
Written by economist Benjamin Graham, the 1949 classic is about so-called value investing _ buying underpriced securities through fundamental analysis.
Warren Buffet read the book at the age of 20 and became a very wealthy man by faithfully following the lesson he learned from “The Intelligent Investor” and “Security Analysis,” also authored by Graham.
In 2011, Buffet said that investors only need to understand chapters 8 and 20 of The Intelligent Investor and chapter 12 of the “General Theory on Employment, Interest, and Money” by John Maynard Keynes.
In the book, Graham urges people to become investors, not speculators, by seeking an adequate return and safety of principal through extensive analysis.
“An investor calculates what a stock is worth, based on the value of its business,” he writes. “A speculator gambles that a stock will go up in price because somebody else will pay even more for it.”
“The speculator’s primary interest lies in anticipating and profiting from market fluctuations. The investor’s primary interest lies in acquiring and holding suitable securities at suitable prices.”
Understandably, he does not love trading strategies. He even does not like the idea of deriving the all-important price-earnings ratio by unknown future earnings.
“The only thing you should do with pro forma earnings is ignore them,” he notes.
Standing as Graham’s diametrical opposite would be legendary quantitative investor Jim Simons as demonstrated by Gregory Zuckerman’s book “The Man Who Solved the Market” (See Korea News Plus article on Feb. 28, 2021.)
Set up in 1988, his Medallion fund has chalked up average annual profits of up to 66 percent through the summer of 2019, before investing fees.
Graham would not believe that.
What if the two great investors have discussions about their investment philosophies? It would be interesting. Although written some 70 years ago, Graham’s book is still good enough to represent the proponents of value investing.