THE INTELLIGENT INVESTOR BY BENJAMIN GRAHAM

Key concepts

• Margin of Safety: This is perhaps Graham's most important concept. It involves buying a security for significantly less than its intrinsic, or calculated true, value. This discount provides a buffer against unforeseen events, market downturns, or human error, thereby protecting the investor's principal.
• Mr. Market: This is an allegory for the irrational nature of the stock market. Graham personifies the market as a manic-depressive business partner who offers to buy or sell shares at wild and unpredictable prices every day. An intelligent investor should not be swayed by Mr. Market's mood swings but should instead use his irrationality to their advantage, buying when he is pessimistic (prices are low) and selling when he is optimistic (prices are high).
• Investment vs. Speculation: Graham draws a clear and crucial distinction between these two activities. An investment is the result of thorough analysis, promises the safety of the principal, and offers a satisfactory return. Speculation, on the other hand, involves trading based on short-term price movements and hoping for a quick profit, without regard to the underlying value. Graham stresses that an investor's interest is in holding a suitable security at a suitable price, while a speculator's is in profiting from market fluctuations.
• Fundamental Analysis: Graham emphasizes that investors must conduct diligent research and analyze a company's financial statements to understand its financial health, competitiveness, and growth potential, rather than relying on market trends or fads.
• Diversification: To manage risk, Graham recommends diversifying investments across different assets and sectors. This acknowledges the limits of one's knowledge and the unpredictability of markets by ensuring that no single mistake can be catastrophic to the portfolio.
• Patience and Long-Term Perspective: The book favors a long-term approach to investing, criticizing speculative trading. Graham teaches that an intelligent investor must be patient, allowing their investments to reach their potential over time.