Benjamin Graham’s The Intelligent Investor (Book review)
“I read the first edition of this book early in 1950, when I was nineteen. I thought then that it was by far the best book about investing ever written. I still think it is.”
These words in a preface to a revised edition of The Intelligent Investor by Benjamin Graham, the father of value investing, came from none other than Warren Buffett, the legendary investor who is chairman and chief executive officer of Berkshire Hathaway.
Known to many as the Wizard of Omaha or the Oracle of Omaha or the Sage of Omaha, Warren Buffett is a strong believer of value investing, a belief which the legendary value investor steadfastly puts into practice at Berkshire Hathaway. Reflecting the great success of his investment approach, Berkshire Hathaway’s 2013 Annual Report shows that “over the last 49 years (that is, since present management took over), book value has grown from US$19 to US$134,973, a rate of 19.7% compounded annually”. These are per-share book values.
“To me, Ben Graham was far more than an author or a teacher. More than any other man except my father, he influenced my life,” Warren Buffett said in the same book preface.
In a section of his letter to Berkshire Hathaway shareholders on February 28, 2014 (for FY 2013), Warren Buffett said: “Ben’s ideas were explained logically in elegant, easy-to-understand prose (without Greek letters or complicated formulas). For me, the key points were laid out in what later editions labeled Chapters 8 and 20. (The original 1949 edition numbered its chapters differently.) These points guide my investing decisions today.”
Sharing “some thoughts about Investing”, Warren Buffett said: “I learned most of the thoughts in this investment discussion from Ben’s book The Intelligent Investor, which I bought in 1949. My financial life changed with that purchase. Before reading Ben’s book, I had wandered around the investing landscape, devouring everything written on the subject. Much of what I read fascinated me: I tried my hand at charting and at using market indicia to predict stock movements. I sat in brokerage offices watching the tape roll by, and I listened to commentators. All of this was fun, but I couldn’t shake the feeling that I wasn’t getting anywhere.”
There are 20 chapters in the revised edition of Benjamin Graham’s The Intelligent Investor. For Warren Buffett, the most known disciple of Benjamin Graham, the key points were laid out in Chapters 8 and 20. The best takeaway from Chapter 8 is Benjamin Graham’s parable about Mr Market, a character he used to personify the behavior of the stock market. Warren Buffett once described this Mr Market as a character with uncurable emotional problems. For the intelligent investor, the question is how to turned the behavior of Mr Market to your investment advantage. Chapter 20 is on “Margin of Safety” as the Central Concept of Investment.
The best part about intelligent investing is that one doesn’t need a high IQ to achieve success. Warren Buffett said it best: “To invest successfully over a lifetime does not require a stratospheric IQ, unusual business insights, or inside information.”
The Intelligent Investor can be heavy going for the beginner investor but the beauty of the revised edition is that the chapters, and the introduction, are each accompanied by a commentary from veteran investment writer Jason Zweig.
For those who love Benjamin Graham’s value investing philosophy, The Intelligent Investor is seen as a book shielding investors from substantial error and teaching them to develop long-term strategies. This investment philosophy has made the book the stock market bible for value investors.
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