Investing for Intelligent investors" by Benjamin Graham- Book Review

While doing the review of the book “The Intelligent Investor” by Benjamin Graham", I was literally feeling like showing the candle to the star. To top it, the points made by Graham 100 years ago remain valid till this day !

But, I am determined not to make this review a simple rehash of the points made by Graham. Rather let this review be a free flowing blog, where I will review the views made by Benjamin in the Bible for investors with the investing and trading market today.

I will not review all the 20 chapters of this book, but the contents of those chapters which I feel retain the importance to this day.

Investing for Intelligent investors" by Benjamin Graham- Book Review (thehourjob.com)

Let the commandments begin

In the first chapter Graham says that any investment made without due diligence and that which does not guarantee safety and adequacy of return, is a speculation. By safety of return he meant the return from the stock to be consistently 1.5 times higher than the sum of interest and the gdp for that year. Holds true for the 2018 as it was for 1940.

He also advised not to invest in stocks whose business you do not understand. My advice would be exactly same today.

I love bond but of movie

In the second chapter, Graham tells a fact:Inflation is unbeatable and to keep up (note the keyword is keep up-defensive investing so dear to Graham), invest adequately in bonds.

With all due respect, today the situation is different and would be imprudent to put considerable amount in bonds for inflation.

Today instruments like commodity MFs, commodities which move up with inflation, inflation tagged bonds, currencies futures are available, which counters the inflation with hearty profit on top.

In chapter 4, Graham deals with portfolio policy. He sides with the defensive investor and asks the investor to put 50% of money in bonds

Again as a reviewer, i would beg to differ. High inflation of today would not benefit  the bond traders and would leave them with the capital only, with appreciation similar to government interest. With many products available, it would be much better to invest in alternate product like gold which  goes up if the equity market goes down.

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Diversify into diversified items

IN 5th chapter, Benjamin asks the investor to diversify.He advises to keep the portfolio between 10 to 30 stocks.

Reviewers take: With the equity and commodity markets getting merged, do not diversify only into stocks but look out for currencies and commodities too. These would move in an inverse direction, should market fall.

He asks investor to cash in those stocks that have a long history of consistent dividends, and looks good both financial performance and market price wise.

Reviewer: Today fortunately, you need not immerse yourself in Graham’s book, but the funds managers would do the selection for you.

In another later chapter, Graham underlines the things that an investor should avoid.

●       At that time Graham was in love with bonds. But he cautions against investing in bonds with less than a 5-star rating. True.

Foreign Stocks/ Bonds anybody ?

●      He asks his followers to avoid foreign bond. Sorry Sir, in today's market, I have to disagree. Bonds of super power like USA are available in Indian markets today. They are not only lapped up by common investors in India but by investors world wide.

By the way ,US treasuries are one of the hottest assets          around.

Should I invest in primary IPO market ?

●      Graham asks us to avoid IPOs in whatever form they existed in the 1960s, because of no previous performance reference. Hats off Sir, I cannot agree more. Remember the hype before and the despair after the IPOs of Reliance Power or Reliance Infra?

At what P/E ?

Graham is not opposed to growth stocks. He gently asks to consider them, but when they are at lower valuations.

Yes Sir. Growth stocks like Airtel showed year to year growth but did not reward the shareholders in its prime. Investors stuck to the stock, at high prices, hoping the profit growth would continue. It took only one year for Reliance (Jio) to bring it to floor from stratosphere. Now it has a de-growth of over 50% in 2018.

As far as P/E is concerned, Graham proposed P/E not more than and around 20 for stock acquisition. As a reviewer I fully agree, but would suggest much lower limit of P/E (12-14) for buying. With increased volatility and scandals, almighty stocks fall dismisally. Wait for the right chance.

Should we buy whenever there is a news or a large fall in stocks price ?

The investor guru asks us to refrain from buying considering only a sudden fall in price. Rather he recommends considering those situations when an event occurs (like nearing the end of huge loan) which is going the impact the stock in a highly positive manner in future.

Conclusion

There are discussions in more metrics, ratios (financial) and tenants written by Graham in his book “The intelligent investor”. These will be discussed some other day. But the fact of the matter is that the tenants proposed by Graham in this book remains relevant currently as much as it was in the 1940,1950 and 1970s. Striking, isn't it? And that is why it remains a best seller even in this age.
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