Click here to Download The Intelligent Investor PDF Book by Benjamin Graham having PDF Size 6 MB and No of Pages 638.
Allied to the foregoing is the record of the published stock-market predictions of the brokerage houses, for there is strong evidence that their calculated forecasts have been somewhat less reliable than the simple tossing of a coin. In writing this book we have tried to keep this basic pitfall of investment in mind.
The Intelligent Investor PDF Book by Benjamin Graham
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About Book – The Intelligent Investor PDF Book Download by Benjamin Graham
The virtues of a simple portfolio policy have been emphasized—the purchase of high-grade bonds plus a diversified list of leading common stocks—which any investor can carry out with a little expert assistance. The adventure beyond this safe and sound territory has been presented as fraught with challenging difficulties, especially in the area of temperament.
Before attempting such a venture the investor should feel sure of himself and of his advisers—particularly as to whether they have a clear concept of the differences between investment and speculation and between market price and underlying value. A strong-minded approach to investment, firmly based on the margin-of safety principle, can yield handsome rewards.
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But a decision to try for these emoluments rather than for the assured fruits of defensive investment should not be made without much self-examination. A final retrospective thought. The Intelligent Investor PDF Book Download When the young author entered Wall Street in June 1914 no one had any inkling of what the next half-century had in store. (The stock market did not even suspect that a World War was to break out in two months, and close down the New York Stock Exchange.)
Now, in 1972, we find ourselves the richest and most powerful country on earth, but beset by all sorts of major problems and more apprehensive than confident of the future. An investing environment bristling with the unpredictable menace of global terrorism and war in the Middle East. Much of this damage could have been (and was!) avoided by investors who learned and lived by Graham’s principles. As Graham puts it, “while enthusiasm may be necessary for great accomplishments elsewhere, on Wall Street it almost invariably leads to disaster.”
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By letting themselves get carried away—on Internet stocks, on big “growth” stocks, on stocks as a whole—many people made the same stupid mistakes as Sir Isaac Newton. The Intelligent Investor PDF Book Download They let other investors’ judgments determine their own. They ignored Graham’s warning that “the really dreadful losses” always occur after “the buyer forgot to ask ‘How much?’ ”
Most painfully of all, by losing their self-control just when they needed it the most, these people proved Graham’s assertion that “the investor’s chief problem—and even his worst enemy—is likely to be himself.” These quotations well illustrate the confusion that has been dominant for many years in the use of the words investment and speculation.
Think of our suggested definition of investment given above, and compare it with the sale of a few shares of stock by an inexperienced member of the public, who does not even own what he is selling, and has some largely emotional conviction that he will be able to buy them back at a much lower price. The Intelligent Investor PDF Book (It is not irrelevant to point out that when the 1962 article appeared the market had already experienced a decline of major size, and was now getting ready for an even greater upswing.
It was about as poor a time as possible for selling short.) In a more general sense, the later-used phrase “reckless investors” could be regarded as a laughable contradiction in terms— something like “spendthrift misers”—were this misuse of language not so mischievous. The distinction between investment and speculation in common stocks has always been a useful one and its disappearance is a cause for concern.
We have often said that Wall Street as an institution would be well advised to reinstate this distinction and to emphasize it in all its dealings with the public. Otherwise the stock exchanges may some day be blamed for heavy speculative losses, which those who suffered them had not been properly warned against.
Ironically, once more, much of the recent financial embarrassment of some stock-exchange firms seems to have come from the inclusion of speculative common stocks in their own capital funds. The Intelligent Investor PDF Book We trust that the reader of this book will gain a reasonably clear idea of the risks that are inherent in common-stock commitments—risks which are inseparable from the opportunities of profit that they offer, and both of which must be allowed for in the investor’s calculations.
What we have just said indicates that there may no longer be such a thing as a simon-pure investment policy comprising representative common stocks —in the sense that one can always wait to buy them at a price that involves no risk of a market or “quotational” loss large enough to be disquieting. In most periods the investor must recognize the existence of a speculative factor in his common-stock holdings.
It is his task to keep this component within minor limits, and to be prepared financially and psychologically for adverse results that may be of short or long duration. The Intelligent Investor PDF Book The outright ownership of real estate has long been considered as a sound long-term investment, carrying with it a goodly amount of protection against inflation.
Unfortunately, real-estate values are also subject to wide fluctuations; serious errors can be made in location, price paid, etc.; there are pitfalls in salesmen’s wiles. Finally, diversification is not practical for the investor of moderate means, except by various types of participations with others and with the special hazards that attach to new flotations—not too different from common-stock ownership. This too is not our field. All we should say to the investor is, “Be sure it’s yours before you go into it.”
Naturally, we return to the policy recommended in our previous chapter. The Intelligent Investor PDF Just because of the uncertainties of the future the investor cannot afford to put all his funds into one basket—neither in the bond basket, despite the unprecedentedly high returns that bonds have recently offered; nor in the stock basket, despite the prospect of continuing inflation.
The more the investor depends on his portfolio and the income therefrom, the more necessary it is for him to guard against the in a year—that it can, all by itself, set an otherwise lackluster portfolio glittering. However, the intelligent investor avoids investing in gold directly, with its high storage and insurance costs; instead, seek out a well-diversified mutual fund specializing in the stocks of precious-metal companies and charging below 1% in annual expenses.
Limit your stake to 2% of your total financial assets (or perhaps 5% if you are over the age of 65). For the widow, the problem of living on her income is a very difficult one. On the other hand the need for conservatism in her investments is paramount.
A division of her fund about equally between United States bonds and first-grade common stocks is a compromise between these objectives and corresponds to our general prescription for the defensive investor. The Intelligent Investor PDF (The stock component may be placed as high as 75% if the investor is psychologically prepared for this decision, and if she can be almost certain she is not buying at too high a level. Assuredly this is not the case in early 1972.)
We do not preclude the possibility that the widow may qualify as an enterprising investor, in which case her objectives and methods will be quite different. The one thing the widow must not do is to take speculative chances in order to “make some extra income.” By this we mean trying for profits or high income without the necessary equipment to warrant full confidence in overall success.
It would be far better for her to draw $2,000 per year out of her principal, in order to make both ends meet, than to risk half of it in poorly grounded, and therefore speculative, ventures. The average doctor may be more likely than the average widow to elect to become an enterprising investor, and he is perhaps more likely to succeed in the undertaking.
He has one important handicap, however—the fact that he has less time available to give to his investment education and to the administration of his funds. In fact, medical men have been notoriously unsuccessful in their security dealings. The Intelligent Investor PDF The reason for this is that they usually have an ample confidence in their own intelligence and a strong desire to make a good return on their money, without the realization that to do so successfully requires both considerable attention to the matter and something of a professional approach to security values.
Finally, the young man who saves $1,000 a year—and expects to do better gradually—finds himself with the same choices, though for still different reasons. Some of his savings should go automatically into Series E bonds. The balance is so modest that it seems hardly worthwhile for him to undergo a tough educational and temperamental discipline in order to qualify as an aggressive investor. Thus a simple resort to our standard program for the defensive investor would be at once the easiest and the most logical policy.
Let us not ignore human nature at this point. Finance has a fascination for many bright young people with limited means. The Intelligent Investor PDF They would like to be both intelligent and enterprising in the placement of their savings, even though investment income is much less important to them than their salaries. This attitude is all to the good.
There is a great advantage for the young capitalist to begin his financial education and experience early. If he is going to operate as an aggressive investor he is certain to make some mistakes and to take some losses. Youth can stand these disappointments and profit by them. We urge the beginner in security buying not to waste his efforts and his money in trying to beat the market.