Title RIG_The Intelligent Investor Text Summary.pdf ✅

KEY QUOTES THE INTELLIGENT INVESTOR Benjamin Graham The Classic Text on Value Investing The Big “So What” What’s Intelligent Investing? A ReadinGraphics production • Copyright © 2023 Skool of Happiness Pte Ltd. • All Rights Reserved. 1 “The purpose of this book is to supply, in a form suitable for laymen, guidance in the adoption and execution of an investment policy.” “Sound investment principles produced generally sound results. We must act on the assumption that they will continue to do so.” This book is considered a bible in the world of value investing. It provides invaluable insights on adopting a disciplined, rational investment approach, to focus on the intrinsic value of a company instead of market speculation. Warren Buffett is well-known for his concept of value investing, which originated from Graham’s teachings on intelligent investing. This is not about having a high IQ or mastering financial techniques, but having the knowledge, principles and mindset to be an astute investor. The goal is not to beat the market or to get rich overnight, but to build wealth in a steady, consistent way. Although Graham first published this book decades ago, the timeless principles remain relevant today. • In this summary, we’ve streamlined and organized the content into 3 sections: Foundational Principles of Intelligent Investing; The 2 Investment Pathways; and Other Investment Insights. (i) (ii) (iii)
KEY QUOTES A ReadinGraphics production • Copyright © 2023 Skool of Happiness Pte Ltd. • All Rights Reserved. Foundational Principles of Intelligent Investing Invest, Don’t Speculate Focus on Real Returns After Inflation 2 “If you’ve failed at investing so far, it’s not because you’re stupid...It’s because...you haven’t developed the emotional discipline that successful investing requires.” — Jason Zweig “If you want to speculate do so with your eyes open, knowing that you will probably lose money in the end.” “Never mingle your speculative and investment operations in the same account, nor in any part of your thinking.” There’s a major difference between investment and speculation. • An investment is based on robust analysis, with the goal to preserve your principal and obtain sufficient returns in the long term. For example, you may buy a stock after analyzing the company’s financial health and future potential. • Anything that’s not an investment is a speculation, such as buying a trending stock in hopes that its price will go up, or acting based on an unverified “tip”. • The goal of intelligent investing isn’t to outperform the market every year. It is to: Achieve steady, positive returns over time; and Preserve your principal by avoiding severe losses. If you lose $90,000 out of $100,000 investment capital, you’d need returns of 900% just to recoup your initial amount. Speculation isn’t “bad”. The danger lies in confusing speculation and investment—to think you’re investing when you’re speculating and exposing yourself to unnecessary risks. • If you wish to try your hand at speculation, Graham recommends keeping separate accounts: one for genuine investments and a smaller account for speculative activities. This limits losses from speculations, and keeps you from muddling your investment strategy with speculative bets. (i) (ii) Inflation erodes your money’s purchasing power over time. If your investment returns are lower than inflation rates, you are effectively losing wealth. • Imagine you have $100, and inflation is 5% per annum. In a year, even if your money grows to $102, its purchasing
KEY QUOTES A ReadinGraphics production • Copyright © 2023 Skool of Happiness Pte Ltd. • All Rights Reserved. 3 “Just because of the uncertainties of the future the investor cannot afford to put all his funds into one basket.” power is only comparable to $95 from the previous year due to inflation. So, you’ve actually lost value in real terms. Assets (e.g. bonds, stocks, property) may be used to hedge against inflation, i.e. build an asset portfolio whose value appreciates more than the rate of inflation in the long run. To this end, Graham discussed different types of assets: • Bonds and fixed-income instruments: Bonds are loan agreements between a lender and an entity (e.g. government or company). They guarantee periodic interest payments and the return of your principal at a specified maturity date. Bonds are typically seen as a safe form of investment. However, their returns may be lower than inflation rates during periods of high inflation, leading to negative real returns. • Stocks, shares, or equity: These represent ownership in a company. They give you a claim on a portion of the company’s assets and earnings, and may come with dividends as a share of company profits. Historical data suggests that stocks tend to outperform inflation in the long term. • Other tangible assets (e.g. real estate, gold, or collectibles) can also retain value during inflationary times. Like all investments, they come with their own risks, e.g. gold doesn’t provide ongoing income and may incur storage costs, while the prices for artwork can be unpredictable. It’s impossible to predict the rate of inflation or the future performance of any asset class. So, the best way to counter inflation is to have a diversified portfolio with various assets, and to regularly review and adjust your portfolio. • Always think in terms of real returns, i.e. returns after accounting for inflation. If your investment returns are 7% and inflation is 5%, your real return is just 2%. To grow your wealth, you need investments with positive real returns. • Stay vigilant: regularly assess the economic landscape and adjust your strategy to address changes in inflation rates.
KEY QUOTES A ReadinGraphics production • Copyright © 2023 Skool of Happiness Pte Ltd. • All Rights Reserved. Understand the Stock Market History 4 “Prudence suggests that [the investors] have an adequate idea of stock-market history, in terms particularly of the major fluctuations in its price level and of the varying relationships between stock prices as a whole and their earnings and dividends.” “The only thing you can be confident of while forecasting future stock returns is that you will probably turn out to be wrong.” —Jason Zweig A good investor should understand the history and performance of financial markets. In the book, Graham analyzed a century of stock market data, emphasizing the need to understand (i) price fluctuations, and (ii) the relationship between stock prices, earnings and dividends. • From 1871-1971, the stock market went through several highs (e.g. the Roaring Twenties) and lows (e.g. the Great Depression), punctuated by short-term volatility. Investors should expect such cycles and fluctuations, and realize that it’s hard to predict short-term market direction. For example, back in 1927, it was nearly impossible to foresee whether the market would rise or fall. • In the long-term, the market showed a general upward trajectory to provide solid returns. Graham attributed this to a combination of 3 things: (i) inflationary growth, (ii) real growth in companies’ earnings and dividends, and (iii) speculative growth linked to people’s appetite for stocks. While inflation affects stock appreciation, it’s not a key driver. For a true measure of their returns, investors should adjust for inflation. A bigger driver was the real growth in companies’ earnings and dividends. Dividends, especially when reinvested, played a major role in compounding growth. Stock prices can fluctuate wildly due to irrational speculation, often bearing no relation to the stock’s intrinsic value. (i) (ii) (iii)