5 Powerful Lessons from The Intelligent Investor

If you’ve read the book “The Intelligent Investor”, you might’ve found it a bit dry – but trust me, it’s a must-read for mastering the art of investing. In this article, I’ll break down the key takeaways to make it easier (and way more exciting) for you!

Graham’s Definition of Investing through The Intelligent Investor

According to him, investing isn’t only about parking your money in equity and keeping it buried forever. Yes, I agree that’s what we call Coffee Can Investing, but he has listed three principles that lay the foundation of investment.

Thorough Analysis	Safety of Principal	Adequate Returns
If you are investing in a company, it must be backed by in-depth research or else it is a mere speculation.	It is very important that your capital is preserved throughout your investment horizon. This can be achieved by diversification of your portfolio.	If you are getting a bare minimum return from your investment which is failing to beat the inflation, then you are losing the value of your investment.

Concept of Mr. Market

Graham has introduced Mr. Market as someone who knows the equity market very well. So, if you come across a stock that is overvalued, one can presume that it is one of the favorites of the market and it is undervalued otherwise. He tells us that most of the time Mr. Market is correct. But there are some days when Mr. Market goes through a mental breakdown and gives you an opportunity to enter/exit your good/bad investments.

Also Read: Is Your Money Losing Value? Here’s Why Investing Beats Saving – WealthilyYours

Margin of Safety:

Have you ever noticed the dry runs on the metro tracks once they are built? The metro trains run with a much heavier load than they would usually carry. The additional load is to test the Margin of Safety just in case if there are more passengers than expected.

So, if you feel that the fair value of a share is 100 Rs, you don’t buy at 100, you but at 80-85 with a 10-15% margin of safety.

Type of Investor:

Graham has stated few traits that can identify what kind of an investor you are.

He has concluded that over a longer horizon, enterprising investor would gain more from the market because of his ability to take risk and to spend more time on research.

Defensive	Enterprising
Fears Risk Devotes less time on research Fears loss Creates a permanent portfolio that will run on its own Seeks freedom from making frequent decisions Emotionally demanding; can’t handle losses Average market returns	Has more risk appetite Devotes more time on research Has more self-belief Does continuous research; monitors stocks Requires high effort and time, similar to owning a business Physically and intellectually taxing Above average market returns

Hybrid Investor: He has introduced one more kind of investor who fall in between that of defensive and Enterprising. They invest based on news and speculations. Graham in his book “The Intelligent Investor” has advised to stay away from these kind of investors as they get the lowest returns from the market.

5 Strategies to Maximize Returns from The Intelligent Investor:

1. Invest in an Index Fund. Index fund is a mutual fund category that invests in the benchmarks. E.g., Nasdaq/S&P etc.
2. Invest in Companies having:
   • Minimum 500$ million in Revenue.
   • Current Assets twice than current liabilities.
   • Long-Term borrowing not more than net current assets.
   • Positive net profit in last 10 years.
   • Minimum 1/3^rd increase in EPS over 10 years.
   • Price of stock shouldn’t be more than 15 times of earnings and not more than 1.5 times book value.
3. If you are an enterprising investor, you should pick companies with:
   • Current Assets are minimum 1.5 times of liabilities.
   • Debt not more than 1:1 times of current assets.
   • No loss in last 5 years.
   • Regular dividend paying.
   • Growth in earnings.
   • Stock Price should be less than 1.2 times of fixed assets.
4. If you are a high-risk taker, you can go for companies trading below their NCAV (Net Current Asset Value) provided they are not loss making from past years.
5. Avoid companies that are involved in legal troubles or have corporate governance issues.

Conclusion: Lessons from The Intelligent Investor

“5 Powerful Lessons from The Intelligent Investor” delves into key insights from Benjamin Graham’s classic work, The Intelligent Investor. One of the most crucial lessons from The Intelligent Investor is the importance of value investing, focusing on long-term growth rather than short-term speculation.

Another lesson emphasizes the significance of a margin of safety to protect against market volatility. The Intelligent Investor also highlights the psychological aspects of investing, teaching investors to remain disciplined and avoid emotional decision-making. Additionally, it stresses the need for diversification and patience.

By applying these principles from The Intelligent Investor, investors can achieve consistent, steady returns. If you learn and execute all the learnings from Graham, you can build a huge corpus by the time you retire.

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