The Intelligent Investor: The Classic Bestseller on Value Investing

Rating:
Summary: An Extended Meditation on Caution Before the Marketplace
Review: Warren Buffett introduced this edition of The Intelligent Investor by remarking that when he first read the book as an undergrad he thought then that it was the best investment book ever written, and many years later, after Benjamin Graham had died, Mr. Buffett still thought that The Intelligent Investor was the best investment book ever written, even today. After reading this extended meditation on caution before the stock market, hot tips, and pseudo-quantitative information, I have to concur with Mr. Buffett's assessment.

Although much has been said about this text, after reading it, I now feel that the great many that trumpet its merits simply do not understand its lessons or even its value. Many credit this book, and Graham and Dodd's earlier Security Analysis, for spawning the value investing movement. While true, this book represents something much more. It does not, as most people insist, put forth a quantitative approach to investing. That, unfortunately, is a gross distillation of some of the ideas contained in the book. Rather, it presents a way of thinking about investing, and emphasizes the approach to investing operations, especially with regard to safety, expectations and temperament.

Now some have criticized the book as being quite dated and irrelevant to today's fast moving and turbulent market, but these criticisms must be placed in proper context. This book was written in 1971 and was several revisions removed from the first edition, which appeared in 1949. Sadly, Mr. Graham passed away in 1976, and as such, this book, in its final revision, represents a kind of magnum opus written by a market observer who had seen more than his share of financial foolishness, from the stock markets of the Roaring Twenties to the drama and suspense of the Go-Go Sixties, with a few world wars, social upheavals, oil shocks and financial calamities added just to liven things up a bit. Furthermore, many have said that the examples are dated and no longer applicable, and to this I reply: change the dates and the company names and then ask yourself how the text reads.

Incidentally, every single tenet of modern-day financial planning is presented here, first, and many so-called 'financial innovations' (like the index fund) began as ideas rigorously considered in the text. Graham's ideas laid the foundation for indexing, now a popular way to invest, and he also gave what I believe to be the best treatment of the thorny problem of asset allocation.

However, with this text, Graham told the reader something that no one since has even dared to do today. He told the reader what he or she could reasonably expect to accomplish when taking certain courses of action with respect to investing. Moreover, he devoted a lot of space and thoughtful consideration, backed by both years of observation and experience, to what could go (horribly) wrong when investing. Every other book since has devoted lots of space to notable instances of things going right, playing these up as an incentive to divorce you from your funds.

There is a level of honesty and clarity throughout The Intelligent Investor that many looking to get rich quick will find both boring and intimidating. Paradoxically, the text won't make any sense to most readers until they've lost their shirts picking stocks. Only then will they be ready to read this book and understand what it has to say. Although Graham never tells you how to make a million, he offers good advice on how to keep your money. Nor does he tell you which stocks are the hot stocks, or even how to trade your way to wealth. What he does tell you, however, is to beware those who would substitute numerical extrapolations for hard evidence, and never allow boundless optimism to replace jaded caution. This book makes every attempt to show both sides of the coin, and you always get the whole picture, not just the better half.

In sum, anyone looking to invest with safety foremost in mind, and willing to think about the moves they make and the reasons for making them should read this book. For those looking to speculate, I can only say: in the long run, expect to lose money.