The Intelligent Investor by Benjamin Graham

The Intelligent Investor by Benjamin Graham

While physicist Sir Isaac Newton is widely viewed as the leading authority on gravity and motion, economist Benjamin Graham, best known for his book The Intelligent Investor, is lauded as a top guru of finance and investment. Known as the father of value investing, The Intelligent Investor: The Definitive Book on Value Investing is considered one of the most important books on the topic. By evaluating companies with surgical precision, Graham excelled at making money in the stock market without taking big risks.

One of Graham's key contributions was to point out the irrationality and group-think that was often rampant in the stock market. Thus, according to Graham, investors should always aim to profit from the whims of the stock market, rather than participate in it. His principles of investing safely and successfully continue to influence investors today.

The Intelligent Investor is widely considered to be the definitive text on value investing. According to Graham, investors should analyze a company's financial reports and its operations but ignore the market noise. The whims of investors—their greed and fear—are what creates this noise and fuels daily market sentiments.

Most importantly, investors should look for price-value discrepancies—when the market price of a stock is less than its intrinsic value. When these opportunities are identified, investors should make a purchase. Once the market price and the intrinsic value are aligned, investors should sell.

The Intelligent Investor also advises investors to hold a portfolio of 50% stocks and 50% bonds or cash, to be the pitfalls of day trading, to take advantage of market fluctuations and market volatility, to avoid buying stocks simply when they are fashionable, and to look out for ways that companies may be manipulating their accounting methods in order to inflate their EPS value.