The Smart Investor… a book that makes you a smart investor
The Intelligent Investor by Benjamin Graham is the most famous and best book ever written in the field of investment. Although this book is close to seventy years old, it remains the best among the books written on investing, which was described by the third man in the world in terms of the level of wealth, billionaire Warren Buffett, saying:
“I read the first edition of this book in the early 1950’s, when I was nineteen years old, and I thought at the time that the smart investor book was the best investment book at all, and I still think about it.”
Warren Buffett notes that each of the twenty-eighth chapters of the smart investor book – specifically – formed the cornerstones of his investment activity. He learned a lot from them about how to invest in stocks and think about the stock market. Accordingly, he advises investors to read these two chapters carefully, and to refer to them over and over. Especially when the market is strong or weak.
Despite the magnitude of the smart investor book; As it is about 800 pages long, it is worth reading; It is a rich source of information that everyone who wants to succeed in the world of investing in stocks, currencies and bonds in particular should know. It also contains useful information, and basic rules for everyone who plans to be a smart investor. It establishes the correct intellectual framework for making sound decisions in the field of investment, away from emotions.
The book “The Smart Investor” also focuses on answering questions that concern every investor; Including: What are the factors that are based on choosing shares? Who is the smart investor? And how should the smart investor deal with the emotion that might drive him to adventure? And other important questions.
Benjamin Graham: A Brief Synopsis
Before delving into some of the valuable investment rules and guidelines mentioned in the “smart investor” book, let us pause a little and get to know its author, Benjamin Graham. Graham is considered the greatest financial advisor of the twentieth century, dean of financial analysis worldwide, and the only pioneer who has written in the field of investment globally to the present day.
Many say that he is the godfather of the “real value investment” school. His professional start was on Wall Street; He worked as a reporter at Henderson and Loeb Financial Brokerage; He recorded the prices of securities at $ 12 a week. After that, he became responsible for writing financial reports, before becoming a partner in the same company. Graham was able to achieve an annual income of $ 600,000, when he was only twenty-five years old. In 1926 he and Jerome Newman founded an investment company that was able to withstand many of the financial crises that ravaged the world in that period, such as the Great Depression, World War II and the Korean War. This company was liquidated in 1956.
In the period between 1928 and 1956, Benjamin Graham worked as a lecturer in financial sciences at Columbia University, and it is worth noting that the well-known billionaire Warren Buffett was one of his students, and he learned through his hands the principles of smart investment that formed the cornerstone of his launch in the world of finance, business and wealth. Graham was able to achieve enormous wealth by buying all the losing deals on the stock exchange, and through which he made profits that exceeded the profits of the global stock exchange “Wall Street”, which is something that has not happened before and has not been repeated in history!
Smart investment rules
Now is the time to learn the rules and foundations for smart investment in stocks and money markets.
Real value is the basis of the investment; Graham has emphasized the great importance of this principle; Where he says that the investor should view the company that issued the share as representing the real value and not the value of the stock, whether its price is high or low. He likened the stock exchange to a person he called “Mr. Market”, who came every day to the owner of the stock to offer him a high or low price. Graham says that the smart investor is not easily dragged behind “Mr. Market” and sells the stock, as long as he is convinced of the value of the company that issued the share.
Value for price; Graham believes that when dealing in financial markets, the two most important factors that must be focused on are price and value, and the smart investor is the one who knows the meaning of both of these terms and can distinguish between them. The price is what the investor pays to obtain the share, while the value is what he receives if the share is sold. Graham believes that the vast majority of investors are not aware of the difference between a stock’s price and its value. He says that price and value are related; Value may diverge from the price, sometimes at high or low prices; Therefore, he believes that the smart investor is not affected by the nature of the market, whether he is in an upward or downward position, but rather focuses on the real value of the stock.
Speculation against investment; Graham believes success is important in the long term; He says that buying and selling stocks express the science of choice, but many investors believe that stocks are created for speculation (quick profit), and they do not devise a plan for success in the long term. In Graham’s view, a smart investor is someone who sets himself a business plan and adheres to it as much as possible in order to increase his chances of success.
Dealing with the stock as a share in an existing company, meaning that the smart investor deals with the stock as if it were a stand-alone project and not just a piece of paper for trading. Graham emphasizes that the value of the stock is affected by the value of the company; The higher the share, the higher the share value, and vice versa. From this perspective Graham concluded two basic principles in the world of investment, namely:
Principle 1 – includes margin and safety
As it is based on the fact that the investor can, under certain circumstances, buy the stock at a price less than its real value, and the more the stock is less than its real value, the less the risk factor, and the greater the profit percentage. You are not that precise in your ability to calculate the value of a stock, but what you can do is estimate its value, and we say again and again that investors should acquire ownership in areas where there is wide contradiction, and if you can buy them for two-thirds of their value then do.
No matter how careful you are, the risk that no investor can avoid is not getting it right. And just what Graham calls the hedge – not overpaying, no matter how exciting the investment looks, you can reduce your chances of making a mistake.
The second principle – includes the investor’s approach to the fluctuations of the stock and the market
Graham says that after the investor completes his studies and decides to invest in a share, he should not pay attention to variables outside his study, and the most important of these variables are the fluctuation of the share price for reasons outside his study, so he obscures the relationship between value and price, for example buying a share based on his current fame , Or the upside / downside, and the hope that its price will rise due to changing circumstances is considered speculation.
The vast majority of operations in the financial markets are speculation and not investment. These fluctuations serve the investors. They should pay deaf ears to the daily swirls of the stock market, as good quality companies can withstand these swirls.
The market is like a clock, which always oscillates and fluctuates between unfounded optimism, which makes stocks exorbitant, and unwarranted pessimism, which makes stocks cheap and sold at low prices. But a smart investor is a realist, selling to optimists and buying from pessimists.
Also: How to prepare a successful investment plan
Successful investment that continues for life does not require superintelligence, extraordinary investment capabilities, or inside information about the company. Rather, it requires a peaceful intellectual framework to make the right decisions, and to prevent emotions from spoiling them. Your achievement of exceptional results will depend on the effort and thought that will You can use them in your investments, and on the prevailing trend in the market during the period of your involvement in your investment activity, and accordingly the investment process is the study based on five basic rules: –
Adopt proper analysis before entering into the investment process, analyze investment, know the investment well, and keep sentiments out of the investment.
Reducing the risk factor as much as possible, and preserving capital, so the investment process must have acceptable risks.
And that the investment process has a satisfactory financial return.
That the purchase price is less than the current or future real value resulting from the analytical studies.
As an investor, you are not affected by the natural factors of changing markets, but rather the value of the stock is primarily focused.
Any investment / purchase transaction that does not collect the previous five rules or lose a part of them is considered speculation or adventure, and therefore investment in stock markets, which promises us a satisfactory return and less risk, must be based on the real value calculations of the share …
This was a quick tour in the book The Intelligent Investor by Benjamin Graham, through which we tried to identify the most important rules and foundations on which smart investment is based. It is worth noting that the book was added to some footnotes in 2003 and was translated into Arabic in 2008 within the publications of Jarir Bookstore in the Kingdom of Saudi Arabia. It is a book worth reading and studying for everyone looking for success in the world of finance, business and investment.
Investing Investing in Stocks Financial Culture Smart Investor The Smart Investor Book How to Become a Smart Investor