"The Intelligent Investor" book by Benjamin Graham:
Chapter 1: Investment versus speculation
My key takeaways & Commentary thread π§΅π
Chapter 1: Investment versus speculation
My key takeaways & Commentary thread π§΅π
1/14
Graham defines investing vs speculating:
"Operation in which upon thorough analysis promises safety of principal and an adequate return. Operations not meeting these requirements are speculative".
Graham defines investing vs speculating:
"Operation in which upon thorough analysis promises safety of principal and an adequate return. Operations not meeting these requirements are speculative".
2/14
There are multiple key ideas here:
- Thorough analysis for investments
- Safety of principal
- Adequate returns
Let's examine each:
There are multiple key ideas here:
- Thorough analysis for investments
- Safety of principal
- Adequate returns
Let's examine each:
3/14
Thorough analysis
Stocks are not lottery tickets but are part ownership of a company that produces something.
The price is ultimately tied to the fundamentals of the company. So thorough analysis of the company fundamentals is required for intelligent investing.
Thorough analysis
Stocks are not lottery tickets but are part ownership of a company that produces something.
The price is ultimately tied to the fundamentals of the company. So thorough analysis of the company fundamentals is required for intelligent investing.
4/14
Failing to analyze a company makes you a speculator.
Buying stocks on random tips, momentum, or some random unrelated setups drives you out of the investing world into something else.
Failing to analyze a company makes you a speculator.
Buying stocks on random tips, momentum, or some random unrelated setups drives you out of the investing world into something else.
5/14
The "Thorough analysis" mantra connects for me to things said by other great investors such as Warren Buffett that said:
βBuy a stock the way you would buy a house. Understand and like it such that youβd be content to own it in the absence of any market.β
The "Thorough analysis" mantra connects for me to things said by other great investors such as Warren Buffett that said:
βBuy a stock the way you would buy a house. Understand and like it such that youβd be content to own it in the absence of any market.β
6/14
Peter Lynch repeatedly says a similar thing in his lectures and books.
But I think this quote sums up the essence beautifully:
βKnow what you own, and know why you own itβ
Peter Lynch repeatedly says a similar thing in his lectures and books.
But I think this quote sums up the essence beautifully:
βKnow what you own, and know why you own itβ
7/14
Safety of principal
When investing, the money you put in should be safe (to a reasonable extent, nothing is 100% certain).
You make your principal safe by limiting your downside
Safety of principal
When investing, the money you put in should be safe (to a reasonable extent, nothing is 100% certain).
You make your principal safe by limiting your downside
8/14
Limiting your downside is more important than upgrading your upside.
Risking your principal in hopes for high returns is not investing. It's a bad practice that can lead to painful losses.
Limiting your downside is more important than upgrading your upside.
Risking your principal in hopes for high returns is not investing. It's a bad practice that can lead to painful losses.
9/14
As Graham best student, Warren Buffett puts it:
"Rule Number One: Never Lose Money. Rule Number Two: Never Forget Rule Number One"
As Graham best student, Warren Buffett puts it:
"Rule Number One: Never Lose Money. Rule Number Two: Never Forget Rule Number One"
10/14
Adequate returns
This means reasonable returns within a time frame. Looking for "extraordinary" returns will lead you down a path that will neglect the first 2 conditions of "Thorough analysis" and "Safety of principal".
Adequate returns
This means reasonable returns within a time frame. Looking for "extraordinary" returns will lead you down a path that will neglect the first 2 conditions of "Thorough analysis" and "Safety of principal".
11/14
Look for reasonable returns on your investments and let compounding do the rest.
Graham, in the chapter, goes into details about defensive investors and aggressive investors.
Detailing their allocation strategies in the face of the conditions above.
Look for reasonable returns on your investments and let compounding do the rest.
Graham, in the chapter, goes into details about defensive investors and aggressive investors.
Detailing their allocation strategies in the face of the conditions above.
12/14
The difference between them might be in short to mid-term stress and decision-making.
But ultimately, following the rules, they will both be profitable for the intelligent investor.
The difference between them might be in short to mid-term stress and decision-making.
But ultimately, following the rules, they will both be profitable for the intelligent investor.
13/14
Intelligent investing, as Graham defines it, makes sure that you'll always be profitable in the long term.
Fail to follow any of the steps, and you might destroy your wealth faster than you think.
Intelligent investing, as Graham defines it, makes sure that you'll always be profitable in the long term.
Fail to follow any of the steps, and you might destroy your wealth faster than you think.
14/14
With speculation, you might also earn faster than you think. But the risk isn't worth it.
Through time, the odds stack against the speculator that he is all but guaranteed to lose.
With speculation, you might also earn faster than you think. But the risk isn't worth it.
Through time, the odds stack against the speculator that he is all but guaranteed to lose.
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