In 1949, when asked what it means to be an “intelligent” investor, Benjamin Graham, the father of Value Investing, said…
The word “intelligent”…will be used…as meaning “endowed with the capacity for knowledge and understanding.” It will not be taken to be “smart” or “shrewd”, or gifted with unusual foresight or insight. Actually the intelligence here presupposed is a trait more of the character than the brain.
Then, in 1976, he summed up “investing” with these words…
The main point is to have the right general principles and the character to stick with them.
In short, when Graham said an investor must possess good character, he was thinking of a set of traits – call it Graham’s Mental Toolkit – that he so often praises throughout his writings.
So what exactly is Graham’s mental toolkit to become an “intelligent” investor? Well, here it is…
Source: Benjamin Graham, Building a Profession
There’s no doubt that you need all these four tools in your investment toolkit to become an intelligent investor.
Arithmetic – or working with numbers – is just one part of it, though an important part. But most investors I meet or those who write to me with their questions on how to become intelligent investors, are largely worried about this one part only.
You see, quantitative analysis (arithmetic of investing) is easy to learn. How to analyze financial statements, how to calculate intrinsic value, and how to assume margin of safety can be learnt with practice. In fact, my 20-lesson course on value investing can teach you all that.
But these skills can only take you so far.
The idea, as Graham has suggested so often, must be to build a “good overall character” – which most importantly includes developing self-control and emotional discipline. No investing course can teach you this, and this is where lies your real challenge as an investor.
But then, are you up to this challenge?