Benjamin Graham’s The Intelligent Investor: The Best Quotes

The Intelligent Investor by Benjamin Graham.

I believe it’s important to read, but at the same time being careful what to read. Quality are much better than quantity, and reading twice, in my opinion, is more valuable than reading more.

I read The Intelligent Investor for the first time in 2015, and in December 2019 I had the pleasure of rereading the book. In between readings I gained more investing experience, thus I gained more knowledge by rereading the second time.

I found the quotes below to be the most valuable:

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The standard policy of people all over the world who mistrust their currency has been to buy and hold gold. This has been against the the law for American citizens since 1935 – luckily for them.

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From this there has developed the general notion that the rate of return which the investor should aim for is more or less proportionate to the degree of risk he is ready to run. Our view is different. The rate of return sought should be dependent, rather, on the amount of intelligent effort the investor is willing and able to bring to bear on his task.

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Really good preferred stocks can and do exist, but they are good in spite of their investment form, which is an inherently bad one. ……Thus the preferred holder lacks both the legal claim of the bondholder (or creditor) and the profit possibilities of a common shareholder…..In other words, they should be bought on a bargain basis or not at all. (Jason Zweig asks the following in the commentary after the chapter: “If this company is healthy enough to deserve my investment, why is it paying a fat dividend on its preferred stock instead of issuing bonds and getting the tax break?”)

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…..a steady rising dividend has the potential of attracting “ignorant coupon clippers, not business owners.”

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“No one has yet discovered any other formula for investing which can be used with so much confidence of ultimate success, regardless of what may happen to security prices, as Dollar Cost Averaging”. (This was a statement from Lucile Tomlinson. Graham responds to this statement: The monthly amount may be small, but the results after 20 or more years can be impressive and important to the saver.)

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The one thing the widow must not do is to take speculative chances in order to “make some extra income”.

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Many investors buy securities of this kind because they “need income” and cannot get along with the meager return offered by top-grade issues. Experience clearly shows that it is unwise to buy a bond or a preferred which lacks adequate safety merely because the yield is attractive.

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Our one recommendation is that all investors should be wary of new issues – which means, simply, that these should be subjected to careful examination and unusually severe tests before they are purchased.

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The first is that common stocks with good records and apparently good prospects sell at correspondingly high prices. The investor may be right in his judgement of their prospects and still not fare particularly well, merely because he has paid in full (and perhaps overpaid) for the expected prosperity.

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Those formulas that gain adherents and importance do so because they have worked well over a period, or sometimes merely because they have been plausibly adapted to the statistical record of the past. But as their acceptance increases, their reliability tends to diminish. This happens for two reasons: First, the passage of time brings new conditions which the old formula no longer fits. Second, in stock-market affairs the popularity of a trading theory itself an influence on the market’s behavior which detracts in the long run from its profit-making possibilities.

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A serious investor is not likely to believe that the day-to-day or even month-to-month fluctuations of the stock market make him richer or poorer.

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……,but even the intelligent investor is likely to need considerable willpower to keep from following the crowd.

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Thus, the investor who permits himself to be stampeded or unduly worried by unjustified market declines in his holdings is perversely transforming his basic advantage into a basic disadvantage.

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But investing isn’t about beating others at their game. It’s about controlling yourself at your own game. (Commentary after the chapter by Jason Zweig.)

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We are quite certain that the funds in the aggregate have served a useful purpose. They have promoted good habits of savings and investment; they have protected  countless individuals against costly mistakes in the stock market; they have brought their participants income and profits commensurate with the overall returns from common stocks. On a comparative basis we would hazard the guess that the average individual who put his money exclusively in investment-fund shares in the past ten years has fared better than the average person who made his common-stock purchases directly.

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….that the average individual who opens a brokerage account with the idea of making conservative common-stock investments is likely to find himself beset by untoward influences in the direction of speculation and speculative losses; these temptations should be much less for the mutual-fund buyer.

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We do not think the mutual-fund industry can be criticised for doing no better than the market as a whole. Their managers and their professional competitors administer so large a portion of all marketable common stocks that what happens to the market as a whole must necessarily happen to the sum of their funds.

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Bright, energetic people – usually quite young – have promised to perform miracles with “other people’s money” since time immemorial. They have usually been able to do it for a while – or at least to have appear to have done it – and they have inevitably brought losses to their public in the end.

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If the reason people invest is to make money, then in seeking advice they are asking others to tell them how to make money.

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An investment operation is one which, upon thorough analysis, promises safety of principal and a satisfactory return.  Operations not meeting these requirements are speculative.

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It can be stated as a rule with very few exceptions that poor managements are not changed by action of the “public stockholders”, but only by the assertion of control by an individual or compact group.

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Today’s investors have forgotten Graham’s message. They put most of their effort into buying a stock, a little into selling it – but none into owning it. (Comment in the afterword by Jason Zweig.)

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Investment is most intelligent when it is most businesslike….And if a person sets out to make profits from security purchases and sales, he is embarking on a business venture of his own, which must be run in accordance with accepted business principles if it is to have a chance of success.

 

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