Intelligent Investor Introduction Summary - Benjamin Graham

Benjamin Graham(author):

He started his career as a clerk in trading firm in Wall Street and rose to the position of investment partner. He had his own share of experience of financial losses, but with experience and intellect, he started identifying overvalued and undervalued securities. He survived the Great Crash of 1929-32 and later, his company Graham-Newmann Corp gained 14.7% annually against the entire stock market's gains at 12.2%. His insights and investing principles are practical and realistic. Following are his core principles:

1. Always keep in mind that stock represents actual ownership in real business with an underlying value which doesn't depend on it's share price.
2. Intelligent Investor is one who buys from pessimists and sells to optimists as the market keeps swinging between too much optimism and too worse pessimism.
3. The higher the price you pay, the lower your return will be.
4. Margin of safety- never overpay even if the investment seems very exciting.
5. Patience and steady growth to survive bear markets. Don't take any fact just on faith.

Introduction: What this book expects to accomplish

• Proper Investment policy, principles and investor's mental & emotional attitudes.
• Lessons from historical patterns. "Those who do not remember the past are condemned to repeat it." 
• Forecasts and assurances by experts and Wall Street aren't reliable. Dollar cost averaging is better - invest a fixed amount periodically however the market be :low/high.
• Following the market by buying when stock goes up and selling when it goes down - is fallacious and against any sound investment principle.
• Interest rates, stock prices, inflation, new conglomerate companies that bring a new kind of security issues, bankruptcy, solvency, under-performing performance funds, accounting cook ups, money laundering heads, fraud, war ad terrorism- all such changes in financial markets must be taken into account when applying these principles.
• Enthusiasm may be necessary for great accomplishments elsewhere, on Wall Street it almost invariably leads to disaster. Blind faith in leading stocks and ignoring losses thinking that they will be recouped by renewed advances in market will only lead to permanent losses.
• 50-50 division of portfolio in bonds and stocks.Simple portfolio with high grade bonds and diversified common stocks.
• Defensive investor is someone who wants to avoid serious mistakes and losses primarily and be free from effort, stress and frequent decisions. Aggressive/Enterprising investor is someone who is willing to devote time, effort and care in selecting securities that can perform better than average.
• Growth industries and growth companies in such industries are easily identified only in retrospect.Easy to say now that investing in Microsoft in past would have made us a millionaire. Air-transport industry that seemed like the next big thing in 1940-50s resulted in huge losses. Obvious business growth doesn't translate to obvious profits to investors. Experts dont have a dependable way of selecting and focusing on growth companies.
• The fault in ourselves : The worst enemy of an investor is himself. Do not give into market's excitement.
• How much? : Know what is paid to what is being offered. 
• Limit to issues not selling far above their tangible asset value. Growth issues fluctuate with market unlike public utility companies that are valued close to their net asset value.
• Minimum effort and capability by just buying and holding onto the shares will give average creditable results, if not spectacular. Many experts who tried to beat average fail.
• Know difference between investment and speculation and between market price and underlying value.

Commentary:

If you have built castles in the air, your work need not be lost; that is where they should be. Now put the foundations under them.

• Minimize odds of losses, maximize chances of sustainable profits, control self defeating behavior.
• Nothing to do with IQ- Mathematicians run hedge fund lost more than 2B$ and Newton lost 20K pounds. Emotional discipline is needed.
• Don't let other investors judgement override yours, even the so called experts' forecasts. Think for yourself. 
• Foresight has no real value if most other investors  are already expecting it, as the stocks would have already bid high by now.
• As a stock goes up, it becomes more risky. Welcome bear market so that you can buy stocks for less prices.

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See Intelligent Investor Summary for other chapters summary.