The Intelligent Investor

The “Bible” of value investing, the principle by which Buffett and others beat the index. His closing piece is excellent (about coin-flippers who are random, then he moves to Graham’s disciples). A long read; without Zweig’s commentary I would have stopped weeks ago, but it lays out important principles, first among them not trusting Mr. Market, the crowd. I am pasting a few key points.

Notes

• Intelligent investors don’t rush in; they take time to rationally examine a company’s long-term value: there is a difference between investing and speculating. Investing is a long-term strategy.
• Intelligent investing is broken down into three principles: the company’s financial structure, management’s ability, and dividend history.
• Intelligent investors understand the importance of stock-market history: P/E ratio, ups and downs, foresee overpriced periods, etc. Cyclicality.
• Don’t trust the crowd or the market: best part. Analogy with Mr. Market, a moody and irrational character who buys when there’s hype and sells when panicked. He throws low-priced stocks at you when they are “on sale”, for example. Ignore his actions.
• Enterprising investors start similarly to defensive investors, but they diversify across different stocks. Do not take excessive risk.
• The enterprising investor doesn’t follow the market’s ups and downs. Don’t listen to Mr. Market. Buy when people don’t like a stock, when it is in a bad period or simply ignored. Likewise, ignore “hyped” stocks; they are probably overpriced.
• The enterprising investor has the chance to find real bargains: read financial statements (there are many examples and comparisons), explore and learn. Find underrated but valuable businesses, and voila.

I will add that, besides Zweig, who really shined, Buffett was outstanding: I loved his sections, both intro and outro. A bit old-style, but the book is interesting and laid the foundations for value investing, which is not really my focus, but it helps me understand how the big players work.