Freebie! Finish Graham’s The Intelligent Investor in 3 Minutes

From Benjamin Graham — “father of value investing,” Warren Buffett’s mentor, and “Dean of Wall Street.” The New York Times lists it as one of the must-read finance books.

Quotes & Take-aways

“In the short run the market is a voting machine; in the long run it is a weighing machine.”
A sound mental framework lets you make correct investment decisions; an iron discipline keeps emotion from wrecking that framework.
See Chapters 8 and 20.
Never overpay. A low entry price is the surest way to minimize mistakes.
The secret lies within: think critically, distrust Wall Street “facts,” invest with lasting conviction, and manage your behavior and emotions.
“Those who forget the past are condemned to repeat it” — learn from others’ experience and real-world practice.
Don’t let the market’s mood dictate your own; in value investing, volatility is always short-term.
An industry’s obvious growth prospects do not automatically translate into obvious profits.
Brokerage-house forecasts beat a coin toss? Not really.
An opportunity you don’t understand is never a “missed” opportunity.
Market forces are simple: wherever there is demand, supply will follow.
Who doesn’t already know these headlines?
Hold at least 25 % in bonds; balance the rest in equities.

Three Trading (Speculation) Styles

Market timing: buy on the way up, dump at the first downtick.
News-driven short-term trades.
Growth picking: chase firms with a good record or high future earnings.

What Works on Wall Street Usually Isn’t Popular There

Study history — especially big price swings and how aggregate earnings & dividends relate to prices.
Passive “shortcut” investors should expect the lowest returns; the greatest skill and effort deserve the higher rewards.

Defensive investor: 50 % high-grade bonds + 50 % blue-chip stocks.
Buy preferreds only when they’re irrationally cheap.
Secondary bonds & preferreds swing wildly with the market.
Bull-to-bear warning: unknown small-caps priced above established mid-caps.

Beware promoters’ sweet talk on new issues.
A “good” company may already have its quality fully priced in.

Enterprising investor: hunt for unpopular large companies and bargain securities.
Favor low P/E multiples.
Why prices stay low: scary headlines, prolonged neglect, misunderstood earnings.

Understand “second-grade” companies correctly; “blue chips” have finite growth.

Never pay near par for foreign bonds, preferreds, or second-grade common stock.
If you must speculate, cap the stake, expect losses, and keep it separate from investment capital.
Market-timing has no logic.

“Anything easy to understand and guaranteed to make money cannot last —
all good things are rare and complex.”

Markets make huge mistakes; only the sharp and bold profit from them.
Most businesses fluctuate, but you don’t need to monitor earnings every minute.
Price swings merely hand you better buy/sell points; the rest of the time, ignore the ticker and watch dividends & operations.

Graham’s Simple Valuation Formula

Intrinsic value = Current normal earnings × (8.5 + 2 × expected annual growth)
Uses a 7–10 year growth rate; always be conservative.

Industry “analysis” is usually old news and already in the price.
Don’t over-weight one year’s earnings.
EPS flaws: ignores special charges, dilution from convertibles, etc.

Seven Stock-Selection Criteria

Company size:
Industrial ≥ $100 million sales; utility ≥ $50 million assets.
Strong finances:
Industrial current assets ≥ 2 × current liabilities; long-term debt < net current assets.
20 consecutive years of dividends.
No losses in the past 10 years.
EPS up at least one-third in 10 years.
Price ≤ 1.5 × book value.
Three-year average P/E ≤ 15.

“Cheap short-cuts”: large, important firms at low P/Es or below net-current-asset value.

Market prices already reflect past, present, and reasonable future expectations.

Paired hedge: buy convertibles or preferreds while shorting the underlying common.

Cyclical stocks (e.g., steel) need special caution:

“Current assets at least 1.5 × current liabilities, and price no higher than 120 % of tangible book.”

Bottom line:

Price volatility is your friend, not your enemy.
Stick to a disciplined, value-focused process.
Separate speculation from investment.
Demand a margin of safety — and guard your emotions.

PLEASE BE RESPECTFUL TO THE MARKET, IT’S NEVER YOUR ENEMY!

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