The Intelligent Investor pdf : Today we will talk about Book The Intelligent Investor which was written by Benjamin Graham which was first published in 1940. Graham was an American Economist and Professional Investor. Graham is considered to be the first person to make a value investment. Warren Buffett, who is a very famous investor, credits Graham for explaining him the investment framework and calls him the second most influential man in his life after his father.
With the help of Arguments, Examples and Practical Principles, Intelligent Investor has made a mental and emotional attitude towards the readers’ own investment decision. And today you will know in detail about The Intelligent Investor pdf – The Intelligent Investor in this article of ours.
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The Intelligent Investor pdf – The Intelligent Investor
The Intelligent Investor pdf:
The main objective of Intelligent Investor Book is to inform the common man about a successful investment policy and execute it successfully. This book is not for those who invest in the market everyday, nor its objective is to teach you how you can beat the market.
This book can be of great help to those people who want to understand about investment from the very beginning. This book has been told in three different parts. First of all who is an Intelligent Investor? / Who is Intelligent Investor ? And after that Defensive Investor and Enterprising Investor i.e. Aggressive Investor has been described in detail, so let’s start –
Who is an Intelligent Investor – Who is an Intelligent Investor?
Let’s start with the most important question. Why Invest? Due to inflation it has eroded our wealth by about 3% every year and it is very easy to see. When the rate of inflation increases, then people who depend on a fixed income will suffer a lot almost every year.
On the other hand, those who make regular investments, they get a lot of support from the dividend on their investment and the value of their investment portfolio even at the time of inflation. So what exactly does Graham mean by Intelligent Investor –
It simply means being calm and disciplined and eager to learn. You should control your emotions and think about yourself. No matter how careful you are, the cost of your investment will come down from time to time, you cannot remove this risk, you can only handle it and overcome fear.
In other words, the biggest problem and enemy of an investor is himself, so you have to emphasize on three things.
3 Important Things
- How to Minimize Unrecoverable Losses
- How to increase long term benefits
- How to overcome self-defeating behavior that does not allow most investors to reach their full potential.
The first principle that an intelligent investor has to learn is that increasing the price of the stock increases the risk and decreasing the price also reduces the risk. An intelligent investor is afraid of going up the market because then it becomes difficult to buy a stock as the price rises, whereas you should welcome the market coming down because it allows the stock to be sold again.
Here Graham’s “Margin of Safety” concept helps. By not putting too much money for an investment, it helps in reducing the risk of exhausting your wealth. It is also important to note that Graham also used the term Investor with a speculator.
Those who invest earn money for themselves and those who speculate earn money for their brokers. Investment is such a work that along with safety, it also gives a right return, the work which does not fulfill this requirement is like betting. Next we will talk about two types of investors.
Tow type of Investor
The Defensive Investor, also known as the Passive Investor, avoids major mistakes and pitfalls and focuses on freedom from the need to make continuous efforts, hassles and decisions.
The Enterprising Investor which is also called Active and Aggressive Investor. They like to invest their time and attention in selecting securities that are more attractive than the average. Also, its average return is also higher than that of Passive Investor. It is wise to buy high grade bonds. As well as buying different types of leading stocks, which any investor can do with little or no expert help.
Let us understand these two types of Intelligent Investors in detail.-
The Defensive Investor :
A Defensive Investor runs the race even while sitting in just one place and also wins. Don’t buy too much because the stock market has gone up and don’t sell when it goes down. In Graham’s approach, we have to replace the guessing with the discipline 50% Bonds and 50% Common Stocks everyday is a good thing.
Any change depends on your attitude, appetite to take risk and the circumstances of life. If you can take more risk then go for at least 25% in Bonds/Cash. If you cannot take the risk, then keep a target of at least 75% in Bonds/Cash. Change these percentages only according to the circumstances of your life. Re-balance them every 6 months on the dates to be remembered.
Bonds :
Bonds have low returns but they are secure and stable, so it makes sense to stay away from low quality and high profit bonds. Most of the bonds that investors focus on are Saving Bonds.
Bonds offer affordable and good diversity with the facility of monthly income. Which you can re-invest at the same time at the current rate without any commission. Bond funds are better than Individual Bonds for most investors. Many firms offer many options of Bonds funds at low cost.
Common Stocks:
You cannot live without High Quality Common Stocks in your portfolio as they provide protection against inflation and also give higher returns in the coming years.
Graham’s Rules for Common Stocks –
Keep Common Stocks in a right limit but not too much Diversification, minimum 10 and maximum 30.
Limit yourself to those important companies that have financial condition and have long records of Dividends.
Limit your price for a new issue to about 25 times their average earning for the last 7 years. Not more than 20 times from last year. This type of strategy eliminates even the most strong and popular company. As well as all categories of Growth Stocks.
A Quick Explanation for Rule 3 :
Your portfolio may lose its benefits. If you pay more money for your share. On the other hand bigger and less popular companies are a good option. Do not invest in any company without reading the financial statement and calculating its business value.
Mutual Fund is a good option for a Defensive Investor. To get the upside of stock ownership, without any downside in which you have to look at your portfolio regularly. In this you can get good Diversification and Convenience at low cost. In this case, you are taking the help of a professional to choose your stock whether the market goes up or down. You can buy more every week, month, or quarter.
Index Funds :
Keeping a portfolio of Index Funds is the best way. Index Funds have every right stock and bond. This way you can get an idea of where the market is going.
Practically suppose you can save 5000 in 1 month. By keeping only 3 Index funds, 1000 in 3000 stock market where Foreign Stocks are held and in 1000 Bonds in this way you are keeping almost every investment of this planet which is beneficial to keep.
Every month you buy more. If the market goes down then your already set amount goes up and you buy more shares than last month. If the market goes up then your money buys fewer shares. Having your portfolio on auto-pilot mode prevents you from losing money in an uptrend market which is more dangerous as buying is expensive and avoids buying more when the market falls, making the investment cheaper but increasing the risk.
Expecting an overall average return of 7% on the performance of an Index Fund Portfolio whose cost is 0.3% of the value of the portfolio. You should expect a total average return of 6.7% per annum.
Low Cost Index Fund is the best tool for Low Maintenance Stock Investing. As much as a good Defensive Investor justify, it takes more effort to make it better because the risk is more in it, the cost is high. An Index Fund is kept for 20 years. Keep adding money to it every month and you can beat Professional and Individual Industries in it.
Both the Graham and Warren buffett are very appreciative of the Index Fund. Even in the worst times of the market, some Defensive Investors enjoy the risk of choosing Diversion and Intellectual Challenge. This is the Power of Discipline Buying.
In this case, keep 90% of your stock money in Index Fund, pick some of your own stocks in 10%. Never use your speculation thinking in investment work and do not mix your betting account money with investment account money.
The Enterprising Investor :
Aggressive investors also start from the same base from which Defensive investors start and if intelligent analysis proves to be correct then they also buy other types of securities. Remember, if you apply extra knowledge and cleverness to the investment program, then you will make it more useless instead of a little good result.
Graham tells some points here which aggressive investors should not do at all.
High Profit Bonds, Foreign Bonds:
If you can take more risk now then it will seem more appealing. Day Trading in which you hold a stock for a few hours at a time. The more you trade, the less you will be able to keep. Instead an Enterprising Investor should focus on buying them.
In low market and selling in high markets:
A good company is not a good investment if you pay too much for stocks.
carefully chosen Growth Stocks :
Don’t focus on a stock’s growth when it’s going at its best, but when things go awry.
Various Bargain Issues :
Temporary unpopularity creates wealth, so that you can buy a good company at a good price. Some investors may be adept at choosing their stocks. Everyone else should get help. Especially with Index Funds, if you pay attention Graham has advised investors to practice first. Spend the first 1 year tracking and selecting stocks but not with real money.
Test Drive Your Own Way Before you invest real money, you can make mistakes without incurring real losses. Create a Discipline and Avoid Continuous Trading. Compare your methods with Leading Money Manager and learn what is working for you. There is no harm even if you do not enjoy the experiment and your chosen options are useless.
Take this one index fund of yours and avoid wasting your time picking stocks if you enjoy experimentation and earn good returns slowly build a basket of stocks then limit it to 10% of your portfolio the rest an index Keep in Fund. Remember, if you do not get interest and the returns are bad, then stop.
One Last Note to Be an Aggressive Investor, the ultimate financial risk does not depend on how your investment is, but on how you are an investor, the risk is within you. If you want to know what is Risk, then look at yourself in the mirror, that is Risk, who is looking at you through the mirror. Successful investment is neither managing nor avoiding risk.
Conclusion:
So friends, we invest because of inflation, in which our money ends. An Intelligent Investor is Discipline and ready to learn. Controls his emotions and manages his fear and risk.
As the stock price rises, they become more risky and they are less risky when the price falls. When you avoid picking too much for an investment, you also reduce your chances of losing your wealth.
50% Bonds and 50% Common Stock Approach is good for a Defensive Investor. Hold an index fund for 20 or more years. Add money to it every month and you will perform better.
Friends, we hope that you have liked this article and you must have understood about The Intelligent Investor pdf – The Intelligent Investor .
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