Book Review - the Intelligent Investor

Book review

The Intelligent investor is written by Benjamin Graham and has commentary written by Jason Zweig. In the preface of the book, Warrant Buffet complimented it as “the best book on investing ever written.” The book is published in 1949 so the original writing style and words are a little bit old fashioned and hard to read so Jason Zweig adds comments and footnotes in this updated version that makes the book more relatable to the current market as well as easier to approach for a college student like me. In this book, Graham shares a lot of principals helping investors to understand and approach the stock market. Two philosophies that stand out for me are “value investing” and developing personality.

In the first chapter Graham shows the difference between an investor and a speculator. An investor always studies about the company’s stock principle and return before investing in the company. A speculator usually sees the stock market as a nonstop video game which means that person invests in a company by following the trend and doesn’t know much about the company. Additionally, Graham also defines the difference between defensive and aggressive investor based on their methods to achieve result such as how they trade in the market, how they make decisions for long-term investing and short term investing.

The second chapter mentions that many investors view inflation as a negative event happening to the economy but in the book, Graham points out both pros and cons of inflation. For example, he mentions that China is US biggest debt owner. The inflation decreases the debt and promotes exporting US product. In this case, inflation benefits the economy. About the cons, Jason Zweig points out the psychology affect “money illusion” which makes investors underestimate the disadvantage of inflation. The good news is that there are two strategies that can protect investors’ profit during inflation. Investors can invest in REITs, Real Estate Investment Trusts, and TIPS, Treasury Inflation Protected Securities.

The third chapter demonstrates Graham’s ability to predict the bear market of 1973-1974 and look further to 2 decades in the future. His philosophy is that “By the rule of opposites, the more enthusiastic investors become about the stock market in the long run, the more certain they are to be proved wrong in the short run.” He highly recommends investors to be humble with their forecasting and learn from their own mistakes. He analyzes three factors determine the market’s performance. They are the real value of the company which express through the growth in earnings and dividends, the expected inflation rate of the general market, and other investors’ speculative appetite for stocks and risks.

In the fourth chapter, Graham examines two types of intelligent investor, their allocation among stock and bond, and his advice on choosing bonds. Two kinds