The Intelligent Investor ― 3 Powerful Lessons On Investing |

Favorite TakeAway ― Invest only if you would be comfortable owning a stock even if you had NO WAY of KNOWING ITS DAILY SHARE PRICE.

That’s the beauty of Investing, it’s not gambling like trading.

Investors, unlike traders, don’t need to keep track of the day-to-day variations in stock prices.

Unlike traders, if the investors do their research correctly while entering into a stock, they are very likely to get good returns in the longer run.

According to Benjamin Graham, before buying a company’s stocks, investors must:

Critically examine the company and its Business Model.
Analyze the company’s history and its Management Values

Without any further ado let’s share the 3 powerful lessons on Intelligent Investing.

The 3 Powerful Lessons On Intelligent Investing:-

In 3 Sentences:―

You must thoroughly Analyze a Company, and the Soundness of its Underlying Businesses before you buy its stock;

You must deliberately Protect Yourself Against Serious Losses;

You must aspire to “Adequate,” Not Extraordinary, Performance.

#1: Deep Analysis:

Need For Deep Analysis ― An investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return. Operations not meeting these requirements are speculative.

Intelligent investors always analyze the long-term evolution and management principles of a company before investing.

Based on the collected information from the comprehensive analysis, intelligent investors can identify stocks that have a Gap between their Current Pricing and the Intrinsic Value the company holds.

This step further ensures:―

Investment in the Potentially Profitable Company.
Entry at The Right Time.

So, understanding the business is the first and foremost lesson to Intelligent Investing. A step no Intelligent Investor can dare to skip.

#2: Diversification:

Intelligent investors always protect themselves from losses by diversifying their investments i.e spreading their investments among various financial instruments and industries.

Why Diversify?

According to Graham, no matter how confident we feel, there’s no way to find out whether a stock will go up until after we buy it.

Therefore, the stock you think is “The Next Microsoft” may well turn out to be the next “MicroStrategy” instead. (That former market star went from $3,130 per share in March 2000 to $15.10 at year-end 2002, an apocalyptic loss of 99.5%).

Diversification further ensures:

Low Risk: Keeping your money spread across many stocks and industries helps mitigate the risk of being wrong.
Possible Lottery: The benefit of diversification is not only limited to mitigation of risk. Over long periods of time, a handful of stocks may turn into “superstocks” that can go up 10,000% or more.

Let’s understand Diversification in Simple Words:

Let’s say you have a number of shares of SpiceJet. And, the share price of SpiceJet falls due to some bad news such as loan default or employee strike.

The resulting fall in share price may cause huge losses to you.

But if you had diversified your portfolio by buying stocks of Indigo or some other airlines too then there is a sporting chance that these stocks would have balanced your losses as there is a high probability of SpiceJet passengers shifting to these airlines.

This is just a basic example of how Diversification works.

Additional Tip ― Anything that affects SpiceJet will most probably affect other airlines too. This means you should diversify not only within an industry but also across different industries. The basic funda is that the more unrelated the stocks in your portfolio, the safer your portfolio becomes.

Also Read: Best Books on B ecoming Self-Reliant in STOCK MARKET & INVESTING

3: Focus on Steady Returns:

Graham insists on focusing on steady returns then getting tempted with abrupt high returns.

To corroborate his argument, he gives the following Example,

“To see why temporarily high returns don’t prove anything, imagine that two places are 130 miles apart.

If I observed the 65 mph speed limit, I can drive that distance in two hours.

But if I drive at 130 mph, I can get there in one hour.

If I try this and survive,

Am I “Right”?

Should you be tempted to try it, too, because you hear me bragging that it “worked?”

Flashy gimmicks for beating the market are much the same: in short streaks, so as long as your luck holds out, they work.

Over Time, They Will Get You Killed.

Pro Tip ― Hold an Index fund for 20 years or more, adding new money every month, and you are all but certain to OUTPERFORM the vast majority of PROFESSIONAL and INDIVIDUAL investors alike.

According to Graham, the Intelligent Investor never looks for crazy profits but instead focuses on safe and steady returns. Graham terms Index funds as the BEST CHOICE FOR INDIVIDUAL INVESTORS.

Index funds are perfect for passive, buy-and-hold kind of investors as they provide good long-term returns.

My Favorite Part:-

Benjamin Graham has drawn an intriguing analogy with the infamous words from Julius Caesar,

“The fault, dear Brutus, is not in our stars, But in ourselves”

Benjamin Graham in this book, The Intelligent Investor has transformed the above words into,

“The fault, dear investor, is not in our stars- and Not In Our Stocks- But In Ourselves.”

These words clearly corroborate the importance of the investor’s role in envisaging potential stocks.

Who should read this one?

A perfect read for a fresh appointee in the field of Investing.
Those who are into Investing but are heavily dependent on others for Investment advice.
Anyone who is interested in learning the nuances of the Stock Market & Investing.

Grab your copy Here ― Amazon.in | Amazon.com

The Best Books:
Recommended Reading Lists

1. Best Books To Help You Develop the HABIT of READING
2. Best Books That Teach the Art of Living a HAPPIER LIFE
3. Best Books on STOCK MARKET & INVESTING
4. Best Books To Help You Find HOPE During Your Darkest of Times

That’s all we have for today. Thanks a lot for tuning in to HappinessDhaba. Do let us know your views on this in the comment section.

Signing off with my favorite words

Zindagi Zindabad!

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Jasmeet SinghPsychologist | Engineer | Reader | Blogger

An Engineer-Turned-Psychologist who loves Literature.
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The Intelligent Investor by Benjamin Graham ― 3 Powerful Lessons on Intelligent Investing | HappinessDhaba