The Intelligent Investor, Benjamin Graham

Note from Oct 18th, 2015, ~15 months since this review was written: It turns out I somehow got tricked into downloading the abridged version of The Intelligent Investor (2h45) instead of the unabridged one (17h48). This may explain why I didn’t get much out of the book. Don’t buy the abridged version! What follows below is the original review… 

Surprisingly, I didn’t get as much out of The Intelligent Investor as I had hoped. It might be heresy not to recommend this book, as it is the book everyone tells you to read first if you’re interested in value investing. It has also had an inordinate amount of influence over the last 70 years, most notably on Warren Buffett (who was taught by Graham). I think it is a testament to how influential Benjamin Graham has been that most of this book now reads like a list of truisms about investing, as opposed to packed full of insights. Once insights have been allowed to flow around the investing community for 70 years, the reaction to hearing them stated explicitly is less of a lightbulb moment, but more of a ‘well, duh…’ one.

The central thesis:

  • You’re a member of the general public, so don’t think you’re smarter than the general public.
  • There is such a thing as a defensive investor (as opposed to a speculator), and a good one doesn’t get swayed by quarterly reports and doesn’t buy growth stocks. Their investments are characterised by a ‘margin of safety’.

The book pioneered lots of now-classic ideas in investing, e.g.
1. “You are your own worst enemy”. In this respect Graham pre-empted a lot of recent research into cognitive biases and behavioural finance. His recommendation is to avoid getting caught up in the excitement of speculation, and to never expect outsized returns from any given investment.
2. Diversification: Graham recommends a defensive split between bonds and stocks in your portfolio.
3. “Don’t follow the crowd”.
4. Since you’re not an expert investor, don’t rely on investing being a part of your business. Just expect market returns, and get to work doing your actual business (e.g. manufacturing hammers).

The audiobook available on iTunes is only 2h45m long, and costs $14.95, which is a probably too expensive per minute (especially given that the first half is pretty slow). You could instead read the Wikipedia entry on value investing, and/or a summary of the book, and get most of the content more quickly and for free. Overall, I think the book may be worth reading for historical interest; if you are interested in learning about value investing, there are better things to read (e.g. Warren Buffett’s annual letters to investors).

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