"The Intelligent Investor" by Benjamin Graham: 1 - Introduction

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Hello Steemians,

In this series I will summarize ‘The Intelligent Investor’ by Benjamin Graham. You can expect to learn the principles and foundations of investing which include:

• Minimizing chances of making big mistakes
• Maximizing chances of achieving sustainable growth
• Investor attitude and behaviour towards investing to reach full potential

Terminology & Definitions

Before we move any further, we must also make a distinction between a “defensive” (passive) and an “enterprise” investor. A passive investor is seeking to lessen their decision making and more importantly avoid making serious mistakes. An enterprise investor is willing to dedicate all of his time to his/her portfolio, and meticulously weed out every security to beat the average return on of the market.

In the stock market you can either be a speculator or an investor. Yet, we are certain that no one can make a living by “following the market” buying assets because they have gone up and selling them because they have gone down.

History Repeats Itself

Our approach will be to see the historical performance of the financial markets throughout many decades under different market conditions. A quote Benjamin Graham uses to define this proposition is:

Those who do not remember the past are condemned to repeat it

Simplicity

In his notes, Graham recommended only a 25% investment in stocks and 75% in bonds to a conservative investor in 1964 (Note: at the time bonds returned 2.66% compared to 6.82% of stock market returns). He recommended a 50-50 mix to regular investors.

Check Yourself Before You Wreck Yourself

An investor might think the art of successful investing could be as simple as identifying industries with a high growth potential and further identifying the top companies (stocks) within that industry. It is worth noting that some industries, as exciting as they sound could be disastrous investment options. As an example, the air-transport industry in the 1950’s seemed to be a brilliant investment. The two mutual funds of the industry ended up being huge under-performers, and today it is accepted that “the cumulative earnings of the airline industry over its entire history has been negative”. So always bear in mind:

• Physical growth in an industry does not translate to business profits. As an example, even though the airline industry experienced record number of travellers in the year 1970 the businesses incurred $200 million of losses to their shareholders
• There might be experts who focus on investment options on a single industry, but their focus and knowledge does not always make them correct

The most important takeaway here is for investors not to fall in a situation where they hold their breath for investment gains in a particular industry based on their beliefs.

The fault, dear investor, is not in our stars-and not in our stocks-but in ourselves

Investors Don’t Have to be Smart

Decades and decades of data suggests that investors who establish proper mental and emotional attitudes towards their investment outperform and keep their profits. Many of these “investors” are ordinary people who lack the knowledge of many financial advisors, accountants, and market experts who make big mistakes. Remember, an intelligent investor is one who is patient, disciplined, eager to learn, and can eliminate emotions when making decisions. Even Isaac Newton lost an equivalent of $3 million by buying “South Sea” emotionally.

A Conservative Investing Approach

Graham recommends that the ideal time to sell a stock is when the value of the stock reaches or exceeds the value of all its tangible assets. In some cases, some companies that have spectacular growth prospects may be trading at several times of their tangible asset value, but an investor, he argues, may get too dependable on the volatility and fluctuations of the general market which can easily distract him. A conservative approach would be to invest in a public utility company at about the price of their tangible asset value and enjoy profits on the expanding business regardless of all the market noises.

Conclusions

Certainly the investing lessons of Graham could be applied to cryptoassets. Reading this book again, I wonder whether if my prospects about Crypto are correct. Many people during the dot-com bubble found it hard to believe that you could lose all your money. By 2002, many stocks lost 95% of their value, and that means you must make 1,900% just to get back to where you started. If in January 2018 no price seemed to be too high for crypto, today no price seems to be too low for it either.

More than Bitcoin's price to go up, I like to see an evolution in our monetary system. Perhaps Bitcoin's price is irrelevant to the success of our community, but for that to be true we must be patient to see the results. What are your thought?

There it is. An introduction to “The Intelligent Investor”. I hope you have enjoyed it.

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