In 1973 Warren Buffett's guru Benjamin Graham published the final updated version of his 1940's investment classic 'The Intelligent Investor'. It was recently reprinted with a commentary attached bringing the book up to modern times. Every investor should read this sage advice.
Warren Buffett, the world's most successful investor, says that 'The
Intelligent Investor' by Benjamin Graham is the best book on investment
ever written. But for readers expecting some kind of a definitive method
of picking stocks that will go up this treatise is something of a
disappointment.
Graham's main insight from years of experience -
and he was close to 80 when he last updated 'The Intelligent Investor' -
is that the investor's enthusiasm for investing is his own worst enemy,
and far more likely to loose money than anything connected to stock
analysis.
- Don’t overinvest in equities. Markets wash out occasionally, and it’s good to have some bonds around.
- Don’t underinvest in equities. Bonds can only do so much for you, and it is good to deploy capital into equities when they are out of favor.
- Stocks provide modest compensation against inflation risks.
- Avoid callable bonds. Avoid preferred stocks.
- Be conservative in bond investing. Read the prospectus carefully. Often a bond is less safe than one would expect, and occasionally, it offers more value than one would expect.
- Purchase bargain issues on a net asset value basis when you can find them, but be careful of quality issues.
- Volatility of stock prices can be your friend if you understand the underlying value of a well-financed corporation.
- Having a longer-term investment horizon is valuable, because one can take advantage of short-term fluctuations in price.
- Growth is worth paying up for, but be disciplined. Don’t overpay.
- Be wary of mutual funds.
- Be wary of experts.
- Pay attention to the balance sheet; don’t invest in companies that are inadequately financed.
- Review average earnings of cyclical companies.
- Buy them safe and cheap. Don’t overpay for growth and trendiness.
- Avoid highly acquisitive companies.
- Watch cash flow, and question unusual accounting treatments.
- Be careful with unseasoned (new) companies.
- Strong dividend policies, in companies that can support the dividends, are an indicator of value.
- Aim for a margin of safety in all investing.
For Further Reading,
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