Introduction

What does it mean to be an Intelligent Investor? Do you need a high IQ in order to make returns? Benjamin Graham says no. An intelligent investor is one who has discipline, patience and eagerness to learn. It means being able to control your emotions and think independently. Graham emphasized that this kind of intelligence focuses more on character than the brain.

Did you know that Sir Isaac Newton once invested in stocks? It was in South Sea Company which was the hottest stock in UK at the time. Newton felt that there is panic in the stock market. That is why he sold all his stocks. He gained 100% profit at 7,000 Euros.
However, a few months later, Newton was driven by the enthusiasm of the people. He invested again on South Sea Company at a much higher amount. The result is that Newton lost 20,000 euros.

Later, he remarked that he is good at calculating on heavenly bodies but never on the impulses of the people. Newton asked his friends not to mention the words “South Sea” to him ever again.
Was Newton disciplined, patient and eager to learn? He is certainly at physics but not with investments. He was not able to control his emotions and he was influenced by the opinions of others. That makes Newton an intelligent scientist but not an intelligent investor.

The world of stock trading used to be like a medieval guild. Investors work around in guesswork and superstition. It was Benjamin graham who changed all that. Through his books, he set structure and clarity into investing that it became a modern profession.
How Benjamin Graham did became an authority in investments? How did he gain so much wisdom in stock markets? Benjamin’s was born to a rich family in London year 1894. His father was a dealer of Chinese porcelain. When Benjamin was one year old, his family migrated to New York.

They had a huge house and several servants in Fifth Avenue. However, Benjamin’s father died a few years later. They lost the porcelain business and became poor. What Benjamin’s mother did was to accept some boarders into their house. She also invested some of their money to stocks. Unfortunately, she lost everything in a stock market crash.

Benjamin had one embarrassing memory of going to the bank to cash out a check for his mother. He heard the bank teller confirm if Benjamin’s mother is good for $5. This event motivated him to work hard and improve their situation.

He gained a college scholarship. Benjamin graduated at the top of his class. He was only 20 years old at the time but he was already offered to teach by three different departments. However, Benjamin had to decline. He had his eyes focused on Wall Street.
He began his financial career as a clerk. Then he became an analyst and after that a partner. Soon, Benjamin built his own investment company. It was called Graham-Newman Corp.

For 20 years, his investment firm gained 14.7% returns annually. There became a Great Crash in 1929-1932 but Graham endured and even prospered afterwards. His firm is one of the most successful in Wall Street.

How did he do it? How did Graham thrive in his long investment career? In this book, you will learn the practical tips on how to be an intelligent investor. You will learn how to minimize risks and choose your stocks among others.

The Intelligent Investor is first published in 1973. But Benjamin Graham’s teachings are so essential and insightful that the book remains very relevant today. The business magnate Warren Buffet says that the Intelligent Investor is the best book on investing ever written.

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Investment versus Speculation

Do you know why brokers in the New York Stock Exchange always cheer when the bell rings at the end of the day? That is because regardless if you win or lose, they will make money. You should know the difference between an investor and a speculator.
There are many speculators in the stock market. You shouldn’t make the mistake of being one of them. Speculators are just like gamblers in a sense. Gamblers bet huge amounts of money on high risks. They win sometimes but lose most of the time. All the while, it is the casino which is benefitting.

How do you know if you are investing and not speculating? First, it is when you study the company first, when you weigh its pros and cons before buying stocks. Second, it is when you avoid taking high risks. And third, it is when you expect adequate and not overly high returns.

If you keep in mind these three rules, you will avoid losing money on your investments. You will gain money for yourself and not for the brokers. Speculators are prone to making wrong decisions. Investors, meanwhile, are always cautious. The result is that they have long-term sustainable success. You will become one if you follow Graham’s guidelines.

Now, more and more people are getting into day trading and online trading. It became more like playing a financial video game. Information about investments is pouring out in bars, kitchens, cafes and restaurants. Financial advertisements are all over TV and the Internet.

The problem is that people are misinformed. They are getting plenty of data but not enough intelligence. They just see stocks as blips on a screen. Most of them are speculators. They don’t bother to learn about the companies they invest to. What’s important for them is to know the ticker symbol so that they could buy the stocks.

In 1998, the stock price of a small building-maintenance company tripled in just a matter of minutes. The company’s name is Temco Services. The reason why its price shot up is because people confused its ticker symbol TMCO with TMCS. Ticket Master Online is a popular website which just had its IPO.

People invested on Temco Services because they thought it is Ticket Master Online. They didn’t bother to take 2 minutes to check the ticker symbols on the internet. They just bought stocks and ended up buying TMCO instead of the TMCS they wanted.

Would you be comfortable on not checking stock prices every day? According to Graham, that is one criterion to be an investor. You should be looking at the long-term, at the values of the company you invested in and not the everyday fluctuation. Doing so will prevent you from being influenced by others.

There was one analyst in CIBC who pegged the price target of Amazon.com to grow from $150 to $400. The result is that Amazon stocks increased 14% on that day. That was in 1998. The analyst Henry Bold get explained that his price target is pegged on a span of one year. Nevertheless, Amazon stocks continued to increase. It even exceeded $400 in the next few weeks.

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