Introduction
The book The Intelligent Investor was first published in 1949 by Benjamin Graham. It is regarded as one of the earliest and finest works on investing. Since its initial release, several revised editions have been published. In The Intelligent Investor, Graham has taught and inspired millions of readers worldwide, and the book continues to be considered the most respected guide to investing. His timeless philosophy of “value investing” helps protect investors from common mistakes and encourages the development of sensible strategies that can serve them throughout their lives. The book also represents a significant shift from Graham’s earlier works, such as Security Analysis. Instead of relying on extensive analysis of individual companies, Graham suggests applying simple earnings criteria and purchasing a diversified group of companies. The Intelligent Investor contains 20 insightful chapters across approximately 500 pages. In this article, we will review Benjamin Graham’s The Intelligent Investor.
Key points of the book
Investor vs Speculator
Before buying any stock or financial asset, you should first understand yourself. As Adam Smith once said, “If you do not know who you are, the stock market is an expensive place to find out.” In The Intelligent Investor, Benjamin Graham explains two major points that every investor should keep in mind.
Defensive vs Aggressive Investor
In this book Graham has explained the two types of an investor “Defensive” and “Aggressive”.
- Defensive investor: This approach focuses on the safety of principal and requires minimal effort. Defensive investors typically look for “blue-chip” companies with long records of profitable operations, strong balance sheets, and reasonable prices (often through index funds). If you are too busy or don’t feel qualified to devote significant time and effort beyond reading a book, then, according to Graham, you are considered a defensive investor.
- Aggressive investor: Also known as the active investor, this type of investor is willing to dedicate significant time and effort to researching undervalued securities in the market. If you enjoy studying businesses and analyzing financial statements, then you are likely an aggressive investor.
Seven Virtues of Great Investors
Graham highlights the qualities that distinguish ordinary investors from truly great ones. At the heart of his philosophy are The Seven Virtues of Great Investors—principles that cultivate discipline, patience, and long-term success in the market. You can read more about these virtues in the article “The Seven Virtues of Great Investors.”
Vaccinate yourself against Contagion
Don’t join a group that holds values different from your own. You should commit to your investments rather than treat them like speed-dating (You should marry your investment, not speed-date them), and associating with people who trade recklessly can easily influence your behavior. Instead, seek out patient, like-minded investors in online communities. If you have views about which asset or investment strategy is right for you, write down your reasons before exploring what others are saying. Take no action without first reviewing your original rationale and confirming that there is a sound basis for changing it. As a defensive investor, you must be able to turn away from the crowd; otherwise, you risk constantly overreacting to news, opinions, and rumors.
Mr. Market
Mr. Market: The Moody Partner Who Loves to Sabotage Your Portfolio moods are highly unstable, and his estimates of value depend as much on his emotions as on the actual performance of your business. The more extreme his mood swings become, the more pressure he will put on you to trade with him at the irrational prices he proposes.
How to pic an ETF
There are thousands of ETFs available, and if you want to invest in them, the question becomes: how should you choose the right one? To simplify this, Graham suggested three key criteria, summarized as ETF = Efficiency, Tradability, and Fit.
- Efficiency: Efficiency means keeping annual expenses low—ideally at 0.10% or less. The longer you plan to hold an ETF, the more important this cost becomes, since even small differences in fees can significantly impact long-term returns.
- Tradability: Tradability measures how much it costs to buy or sell an ETF. This cost is reflected in the bid–ask spread—the gap between what buyers are willing to pay and what sellers are willing to accept. Ideally, the spread should be 0.05% or less, and preferably around 0.01%. The longer you plan to hold the ETF, the less this cost matters, since trading frequency becomes minimal.
- Fit: Fit is another word for diversification. You want your fund to wrap itself snugly around the broadest possible bundle of assets. Total market ETFs are ideal because they provide exposure to a wide range of companies across industries, reducing risk through diversification.
Questions should be asked before investment
Everyone has their own checklist to select a stock, however there could be few common questions that one should ask before investing.
- Have I read at least the last three annual reports and the past year’s quarterly reports?
- Have I read the latest proxy statement?
- Does the company have durable advantages?
- Are the managers operators or promoters?
- Have I conducted a premortem?
- What is my edge?
- What are the odds?
- If the stock market shout down for the next five years, would I be happy owing a piece of this company?
Six Dimensions Checklist
Graham employs six broad performance dimensions to systematically evaluate and compare companies, assessing their true quality and investment appeal. These Six Dimensions are clearly explained in the article “Graham’s Six Dimensions Checklist for Selecting Stocks.”
Graham’s 7 Must-Know Rules
Graham explained seven must-know rules for picking a winning stock. These rules are outlined below, and you can read more about them in the article “Graham’s 7 Must-Know Rules for Picking Winning Stocks.”
- Adequate Size
- Strong Financial Condition
- Earnings Stability
- Dividend Record
- Earnings Growth
- Moderate Price-to-Earnings (P/E) Ratio
- Moderate Price-to-Book (P/B) Ratio
When to Cut Loose
The ultimate way to create a margin of safety is by selling; if you were wrong, selling out prevents you from being wiped out. However, only a fine line separates appreciating your caution from regretting your decision. Below are several ways to determine whether selling makes sense:
- Review : Whenever a stock, fund, or other asset drops a fixed amount below what you paid, revisit your original reasons for buying to see if they still hold. Many brokerage firms allow you to set price alerts in advance. Setting thresholds at intervals you consider significant—such as 25%, 33%, or 50%—will compel you to think carefully before selling.
- Reappraise : If you liked the asset at a higher price, shouldn’t you like it even more now that the price has fallen? All else being equal, a lower price means a wider margin of safety—unless the fundamentals of the business have also deteriorated. Ask yourself what has changed about the company that could justify the decline. Base your judgment on facts, not market opinions. If the facts have changed, selling may be the right choice.
- Reprice : Look up what you originally paid. Divide that amount by 10 and ask yourself whether, at that much lower price, you would still want to hold the asset. If the answer is no, then you should definitely sell.
- Reflect : Getting angry at everyone who disagrees with you is a warning sign that your investment thesis might be flawed. True understanding is calm and confident, not defensive. Ask yourself: What am I angry about? Could it be that I’m wrong? Force yourself to redo your analysis with a clear mind.
- Reframe : Selling at a loss is difficult because it forces you to admit a mistake. Instead, frame it as an opportunity—a chance to learn, reset, and protect your capital for better investments ahead.
Points to Consider before Choosing Stocks
- In the short run, fundamentals often don’t matter. In the long run, they always do.
- In the long run, high returns don’t come from great expectations. Often, they come from the reversal of gloomy expectations.
- You can feel that a stock is going to make you rich even in bankruptcy, but your feelings can’t changes the facts. Furthermore, you aren’t one penny poorer if someone else is making more money than you, and it isn’t the job of the stock market to equalize everyone’s wealth. Hedge-fund managers can become billionaires, but they aren’t taking that money from your unless your choose to be on the other side of the trade from them.
- It does not matter how fast a company grows if you pay too much for the stock or can’t bear to hang on.
- If you want to invest in a company, buy the stock. If you want to own bitcoin, buy the digital currency itself, not a company that holds it.
- Great companies can be great stocks, too – but not at any price. Your returns always equal future reality minus present expectations and the higher today’s expectations go, the lower the odd that the future can live up to them.
- No matter how overvalued a stock seems, it can keep going up much longer than even its harshest critics can imagine.
- When a company grows only by buying other companies, it often doesn’t end well – and you need to dissect the financial statements with the scalpel of a skeptic.
Conclusion
The Intelligent Investor is one of the oldest and most influential books written on investment and growth. The revised edition includes commentary that explains each chapter in simpler terms, making Graham’s insights more accessible. The topics and methods discussed in the book remain highly relevant and useful even today. It is truly a must-read for everyone—whether you are a new investor or an experienced one. You could buy this book on amazon.
Disclaimer: I express my own views in this article after reading the book, without intending to offend anyone. I do not sponsor or endorse anyone, and any resemblance to actual persons, living or dead, is purely coincidental. The mentioned link is an affiliate link, and purchasing the book through it is a great way to support me if you’d like to read along!
EA00209