It was sometime in 2005 when a close friend of mine gifted me Ben Graham’s The Intelligent Investor, knowing that I was working as a stock analyst and aspired to become a sensible investor (aspirations are always sensible, you see).
“Is this a good book?” I asked him.
“Seek for yourself,” he told me.
I read through the first few pages of the book, and it didn’t seem to catch hold of my attention, forget captivating me to any extent.
I realized Graham was the teacher of Warren Buffett, whom I’d first read about during my MBA in 2003 (not in the class, but in the library). But the book still did not interest me.
I could not find anything that was brilliant in those first few pages I read. In fact, the very first page of the book where Graham wrote about the purpose of the book was off-putting for a budding stock market analyst…
The author was talking about investment policies, principles, and attitudes! To top that, he wrote, “…little will be said here about the technique of analyzing securities.”
“Darn it!” I said. As any starting analyst and investor, I was looking out for secrets of investing success. But page after page, my search for stuff like “make money”, “get rich investing”, “secrets of stock market success” was all in vain.
And then, I came across this disappointing thing…
Read a typical stock analyst’s report and you’d assume how easy it is to get rich in the stock market. So, this thought from Graham demoralized me even further, as he had nothing to share on how one can get rich easily.
Without reading any further, I kept it where I thought it belonged – the store room of my house, where I also kept old newspapers and other books I’d bought only to realize later that they weren’t worth the cost of paper they were printed on. It lay there for the next three years, till around the middle of 2008, when my wife finally found it and asked whether she should sell it to the junk dealer.
“Hold it!” I told her. “Give it away next month.”
How I thank my stars now that I did not give away that book, and gave it one more chance.
I had been reading Buffett starting 2006, but it was only in 2008 that I gave Graham’s book the first serious reading. And what an experience it was!
What Makes Us Overlook Graham’s Ideas
Drowned in the brilliance of Buffett and Munger, it’s easy to miss the teachings of Ben Graham. The reason is not difficult to understand.
What Graham has taught sounds so simple and commonplace that it kind of seems like a waste of time reading his teachings (like I thought so in 2005), and especially after you are an MBA (huh!). It’s the same as spending ten years learning spirituality and then having somebody tell you that the Ten Commandments were all that counted.
The Intelligent Investor is based on a fundamental set of principles that Graham believed to be true then, and which remain true even 66 years after the book was first published. These principles are something that, no matter what the circumstances, are never to be broken.
The three basic principles Graham writes about in The Intelligent Investor are –
- You should look at stocks as part ownership of a business,
- You should look at market fluctuations in terms of his “Mr. Market” example and make them your friend rather than your enemy by essentially profiting from folly rather than participating in it, and finally
- You must never forget margin of safety – the three most important words in investing – and always build a 15,000 pound bridge if you’re going to be driving 10,000 pound truck across it
As you can see, none of these three ideas are complicated or require any mathematical talent or anything of that sort. And that, I believe, puts people off in the same way a doctor who would prescribe steam as cure for cold instead of antibiotics would put his patients off.
“Just a steam? No antibiotics?” the patient would wonder. In the same way, a casual reader of a book review of The Intelligent Investor would say, “Just these simple principles? Nothing else?”
That’s true, dear reader. And here is what Buffett has to say on these three ideas of Graham…
I think those three ideas 100 years from now will still be regarded as the three cornerstones, essentially, of sound investment. And that’s what Ben was all about. He wasn’t about brilliant investing. He wasn’t about fads and fashion. He was about sound investing.
And what’s nice is that sound investing can make you very wealthy if you’re not in too big a hurry. And it never makes you poor – which is even better.”
Essentially, The Intelligent Investor is a book that helps build the character of an intelligent investor. You may be disappointed if you read the book with any other expectation.
Graham’s core idea in The Intelligent Investor is that you as an investor must build a good overall character – which most importantly includes developing self-control and emotional discipline.
When Buffett was asked what was the best money advice he ever got was, it’s no surprise that he turned to The Intelligent Investor –
Chapters 8 and 20 have been the bedrock of my investing activities for more than 60 years. I suggest that all investors read those chapters and reread them every time the market has been especially strong or weak.
Anyways, Graham loved the story of Ulysses, through the poetry of Homer, Alfred Tennyson, and Dante. He relished the scene in Dante’s Inferno when Ulysses describes inspiring his crew to sail westward into the unknown waters beyond the gates of Hercules thus –
Consider the seeds from which you sprang: You were made not to live like beasts, but to seek virtue and understanding.
Investing, too, is an adventure; the financial future is always an unknown world. With Graham and The Intelligent Investor as your guide, your lifelong investing voyage should be as safe and confident, even if it is adventurous at times.