IntelligentInvestor

• Solid common sense.
• The record shows that even highly paid full-time experts of mutual funds were completely wrong about the short-term future of major and non-esoteric industries.

Things where experts disagree

• Two morals:
  • Obvious prospects for physical growth in a business do not translate into obvious profits for investors
  • The experts do not have dependable ways of selecting and concentrating on the most promising companies in the most promising industries.
• Our main objective will be to guide the reader against the areas of possible substantial error and to develop policies with which he will be comfortable.
• We have seen much more money made and kept by "ordinary people" who were temperamentally well suited for the investment process than by those who lacked this quality, even though they had extensive knowledge of finance, accounting, and stock-market lore.
• We hope to implant in the reader a tendency to measure or quantify. For 99/100 issues we could say that at some price they are cheap enough to buy and at some other price they would be so dear that they should be sold. The habit of relating what is paid to what is being offered is an invaluable trait in investment.
• We shall suggest as one of our chief requirements here that our readers limit themselves to issues selling not far above their tangible-asset value.
• The art of investment has one characteristic that is not generally appreciated. A creditable, if unspectacular, result can be achieved by the lay investor with a minimum of effort and capability; but to improve this easily attainable standard requires much application and more than a trace of wisdom.
• This book will teach you three powerful lessons:
  • How you can minimize the odds of suffering irreversible losses
  • How you can maximize the chances of achieving sustainable gains
  • How you can control the self-defeating behavior that keeps most investors from reaching their full potential.
• An intelligent investor: is patient, disciplined, and eager to learn; you must also be able to harness your emotions and think for yourself. It is a trait of character more than of the brain.
• The intelligent investor (II) realizes that stocks become more risky, not less, as their prices rise – and less risky, not more, as their prices fall. The II dreads a bull market, since it makes stocks more costly to buy. And conversely (so long as you keep enough cash on hand to meet your spending needs) you should welcome a bear market, since it puts stocks on sale.
• Speculation: put aside a portion of your capital in a separate fund for this purpose. Never add more money to this account just because the market has gone up and profits are rolling in. (Thats the time to think about pulling you money OUT of your speculative fund). Never mingle your speculative and investment operations in the same account nor in any part of your thinking.
• The defensive investor is one interested chiefly in safety plus freedom from bother.
• The future of security prices is never predictable. Everything that Graham tells you is designed to help you grapple with that truth. Since you cannot predict the behavior of the markets, you must learn how to predict and control your own behavior.
• This warning cannot be given too often: the investor cannot hope for better than average results by buying new offerings or "hot" issues of any sort, recommended for quick profits. The contrary is almost certain to be true in the long run. The defensive investor much confine himself to the shares of important companies with a long record of profitable operations and in strong financial condition.
• About picking stocks based on what you think is a going to be a good business in the future: A forecaster may be wrong in his estimate of the future; or even if he is right, the current market price may already fully reflect what he is anticipating.

• To enjoy a reasonable chance for continued better than average results the investor must follow policies which are 1) inherently sound and promising and 2) not popular on Wall Street.

  PeterTheil

• An investment operation is one in which, upon thorough analysis, promises safety of principal and an adequate return.
• Inflation eats away at that high number in secret. Instead of taking out ads, inflation just takes away our wealth. Thats why inflation is so easy to overlook and which its so important to measure you investing success not just by what you make but my how much you keep after inflation.
• It is almost a contradiction in terms to suggest as a feasible policy for the average stock owner that he lighten his holdings when the market advances and add to them after a corresponding decline. It is because the average man operates, and apparently must operate, in opposite fashion that we have had the great advances and collapses of the past.
• Far from being an afterthought, dividends are the greatest force in stock investing.

• "Rule of 72"to estimate the length of time an amount of money takes to double, divide they assumed growth rate into 72.

  eg: at 6% the money will double in 12 years (72/6=12)

  P(t) = P₀ e^RT => P(t)/P₀ = 2 = e^RT T = ln2 / R ln2 ~ 72

  Protocols

• Dollar-cost averaging prevents the investor from concentrating his buying at the wrong times. "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.
• The risk attached to an ordinary commercial business is measured by the chance of losing money, not by what would happen if the owner were forced to sell. (Argues against caring too much if a stock price in a good business drops)
• It is bad business to accept an acknowledged possibility of a loss of principle in exchange for a mere 1 or 2% of additional yearly income.
• A stock trader needs to gain at least 10% just to break even on buying and selling a stock. "Dont just do something, stand there!" A long term investor is the only kind of investor there is.
• The investment caliber of a company may not change over a long span of years, but the risk characteristics of its stock will depend on what happens to it in the stock market.
• Investment policy depends in the first place on the choice by the investor of either the defensive (passive) or aggressive (enterprising) role. There is no room in this philosophy for a middle way. As an investor you cannot soundly become "half a businessman" expecting to achieve half the normal rate of business profits on your funds.
• A great company is NOT a great investment if you pay too much for the stock.

• "Put all your eggs into one basket and then watch the basket" - Andrew Carnegie "Do not scatter your shot… The great successes of life are make by concentration"

  Advice UnpopularTruth

• It is easy to tell you not to speculate, the hard thing will be for you to follow this advice
• As the acceptance of forecasting and trading formulas (technical analysis) increases, their reliability tends to diminish for two reasons:
  1. the passage of time brings some new conditions to which the old formulas dont apply
  2. in stock markets the popularity of a trading theory itself has an influence on the market.
• Built in contradiction
  • The better a company's record and prospects, the less relationship the price of its shares will have to their book value. But the greater premium above book value, the less certain the basis of determining its intrinsic value- ie the more this value will depend on the changing moods of the stock market. The more successful the company, the great the fluctuations in the price of its shares. The better the quality of the common stock, the more speculative it is likely to be.

Paradox

• The true investor is scarcely ever forced to sell his shares, and at all other times he is free to disregard the current price quotation. He need pay attention to it and act upon it only to the extent that it suits his interests. The investor who permits himself to be unduly worried by unjustified market declines in his holding is transforming his basic advantage into a basic disadvantage. That man would be better off if his stocks had no market quotation at all, for he would then be spared the mental anguish cause him by other person mistakes of judgment.
• The happiness of those who want to be popular depends on others; the happiness of those who seek pleasure fluctuates with moods outside their control; but the happiness of the wise grows out of their own free acts. - Marcus Aurelius

Stoicism

Happiness

• Most of the time the market is mostly accurate in pricing most stocks. But sometimes, the price is not right, it is very wrong indeed.
• The intelligent investor shouldn't ignore Mr Market entirely. Instead you should do business with him – but only to the extent to which it serves your interests.
• Financial scholars have been studying mutual-fund performance for at least 50 years and they are virtually unanimous on several points:
  • The average fund does not pick stocks well enough to overcome the costs of researching and trading them
  • The higher a funds expenses, the lower its returns
  • the more frequently a fund trades its stocks, the less it tends to earn.
  • highly volatile funds, are likely to stay volatile
  • funds with high past returns are unlikely to remain winners for long

• It is undoubtedly better to concentrate on one stock you know is going to prove highly profitable rather than dilute your results to a mediocre figure, merely for diversification's sake.

  Advice

• As of 2003, assumed returns above 6.5% is implausible, while a rising rate is downright delusional.
• The future can be approached in two different ways: prediction (or projection) and protection. All investors labor under a cruel irony: we invest in the present, but we invest for the future.
• Mutual funds, on average, under perform the market by a margin roughly equal to their operating expense and trading costs.
• Against stock options: Nearly all managers sell the stock they receive immediately after exercising their options.

• The secrete of sound investment distilled into three words: Margin of Safety

  Montras

• The function of the margin of safety is in essence, that of rendering unnecessary an accurate estimate of the future.

  Rationality

• Diversification is the simple basis of the insurance-underwriting business

DEI

• For most investors, diversification is the simplest and cheapest way to widen your margin of safety.

DEI

• You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning are right. Protocol: Cherish the times that you are out of step with the crowd, here lies money.. if you are right.

  Protocols

• To achieve satisfactory investment results is easier than most people think; to achieve superior results is harder than most people think.

  UnpopularImportantTruth

• You have to have the knowledge to enable you to make a very general estimate about the value of the underlying business. But you do not cut it close! This is the margin of safety. You dont try to buy a business worth 83M for 80M.

• The combination of precise formulas with highly imprecise assumptions can be used to establish, or rather to justify, practically any value one wishes, however high.

  PerfectionNotRequired