The Intelligent Investor is the most famous and a must-book for every investor. This book has so much knowledge that I think no one can compare how much information, advice, and lessons this book gives to an investor. This book even clearly defines who an investor is, and separates it from speculators. It corrected the popular belief where everyone thinks that anyone who buys and sells shares in the stock market without even knowing what he/she is selling is an investor.
So, I am gonna extract some core lessons from The Intelligent Investor and we are gonna make a series of blogs as there are many core ideas in the book and I can’t hope to cover all of them in one blog.
One of the key concepts you will first learn in The Intelligent Investor is the difference between investor and speculator. You will learn what it truly means to be an intelligent investor and more importantly, who is an investor. Buying and selling shares in the stock market simply do not make you an investor. According to Graham, investors should always aim to profit from the whims of the stock market, rather than participate in it. From Graham’s view, an intelligent investor has nothing to do with IQ. Even a person having a high IQ can be a foolish investor. Being an intelligent investor is more about controlling your emotions and be disciplined so that you can profit from the fluctuations of the stock market. The stock market will always fluctuate. Now, with the click of a button, you can buy or sell any shares in an instant. And most of us are buying the shares of a company without even understanding what they are doing. When they are buying or selling the shares of a company, it is not just a ticker symbol on a computer or mobile phone. It’s an actual business running right now and you are becoming an owner when you are buying it and losing your ownership when you are selling the shares of that company.
I think the best way to visualize this is to think that when you are buying shares in a company, you think that you are buying up the whole business and think of it as your own business. Of course, many of them think why should I care when I care is that someone will pay a price greater than what I bought and I will just sell it and take profit and I will be gone. If everyone thinks like this, imagine what would be the scenario. The first and foremost lesson you should learn to become an intelligent investor is to control your emotion. You must not make the market your master and buy just because the market says “Buy” and sell just because the market says “Sell”. Instead, you should use the market to your own advantage and make a deal out of him which benefits you, thus making the market your servant instead of the market is your master.
The market is a pendulum that swings forever between over-optimism and over pessimism. When the market is over-optimism, the price is irrationally high than it ought to be and when the market is over pessimism, the price is again irrationally low than it ought to be. So, if we can control our emotions and be disciplined, we can make a very nice deal with Mr. Market during over-optimism and pessimism. We can buy when the market is in a mood of over pessimism and sell when the market is in a mood of over-optimism. Then, it seems fairly easy to make money from the stock market, then almost everyone can be right.
If that’s the case, then why are so many investors not making money, and instead of making money, they are always losing money? The reason is here: though the phrase “control your emotion” seems to be simple, it is very difficult to control your emotion. Once you can control your emotion, you are certain to be rich. But that’s exactly what almost everyone does. If you are an intelligent investor when the market is in a continuously bull market and when it seems like a bear market is never gonna happen like in the 1970s and 1990s. During the 1990s bull market, any company’s share price always seems to be nowhere high although the market is always making all-time new highs. Then, the bear market of the 2000s came and it is the time where the share price of any company seems to be nowhere low although the market is near an all-time low. Some companies are worth less than the profit they are generating during the 1970s and 2000s.
But if you were an intelligent investor, you will analyze and see that the price is unreasonably high during the bull market of the 1970s and 1990s. Always remember, be fearful when people are greedy and be greedy when people are fearful. When people are becoming increasingly greedy day by day, an intelligent investor would be fearful during the bull market. And during the bear market, when people are afraid, an intelligent investor would be greedy and he would buy the shares at a much lower price. When the market goes up or down, always ask this question, “What has changed in the business that the stock market is reflecting?” If the market fluctuates without any reasonable cause, just ignore it and make yourself a good deal if you found one. Like this, you can avoid many of the mistakes an investor makes. This is the first part of the series. See you tomorrow!
Knowledge Glutton 