If there was only one book which I had to recommend to anyone desirous of investing in stock markets to read, it would be Benjamin Graham’s famous book Intelligent Investor. The book was first published in 1949. But has remained contemporary till date. The wisdom in this book must be assimilated by every stock market enthusiast. The earlier the better.
Unfortunately this book is not taught in most of the Indian MBA institutes or CA institutes. I have met scores of mutual fund sellers and stock brokers who are not even aware of this book. If Graham’s Security Analysis is the Bible of stock investing, Intelligent Investor is the Torah of stock investing.
If some of you have been reading the magazine Outlook Money, it was called Intelligent Investor on its debut. Despite the Editorial team of Outlook knowing there would be copyright issues they just lifted the title of the bestseller and ‘chepoed’ it. Very unethical but We are like this only. After an year or two they changed the name. But this is not what I want to write about. It Is a digression.
To cut a long story short, I did not know about Graham or his book for the first 15 years of my investing life. Stupid. I read this book first in 2006. I started following a few lessons which I derived from it but then reverted back to my old habits. Because, chains of habit are too light to be felt, until they are too heavy to be broken.
I again reread the book in 2008 and 2010 and then again in 2011. After the fourth reading I changed my track and bad habits. But it was not until I had read Munger, Kahneman, Tversky and Dorsey and some more of Graham that I changed my thinking, my SOPs and my portfolio to reach this stage.
The book in a very lucid way tells a lay man about stock markets and about value investing. Investing is all about buying a rupee for 50 paise. Rest all is noise and nonsense.
Graham’s favorite allegory is that of Mr. Market, an obliging fellow who turns up every day at the shareholder’s door offering to buy or sell his shares at a different price. Often, the price quoted by Mr. Market seems plausible, but sometimes it is ridiculous. The investor is free to either agree with his quoted price and trade with him, or ignore him completely. Mr. Market doesn’t mind this, and will be back the following day to quote another price.
The point of this anecdote is that the investor should not regard the whims of Mr. Market as a determining factor in the value of the shares the investor owns. He should profit from market folly rather than participate in it. The investor is advised to concentrate on the real life performance of his companies and receiving dividends, rather than be too concerned with Mr. Market’s often irrational behavior.
Buffett learned from Graham’s book and lectures and realised that a stock holder is simply an owner of the business. And he should always value the share as he would value the entire business. In the last 70 years, Graham Disciples have outperformed 99% of the so called “money-managers” , bankers and Mutual Fund Houses.
The book teaches you that it is not your IQ but your temperament which creates wealth. Go buy it.
DEar sir,
1. Have finished reading `the Richest Man in Babylon’ recently. THe book is a lucid, breezy way of making very valuable insights in financial wisdom. Its easily avlb for free on the weband has my recommendation to be incl in the reading section here. Pls mention it here if u findit to be worthy enough.
2. Am learning a lot nowadays, thanks to ur push to me in the right direction . THe next in th line is the Intelligent Investor. Will posta comment shortly… if CO lves me (haha)
3. Thank u once again for this nobl effort of ur to awaken us ,an uninitiated lot.
Yes it is a good book Worth reading. Also read the Origin of Species by Darwin followed by the Selfish Gene by Dawkins. These books will teach about human behaviour patterns.
Dear Sir,
1. It’s been a while since you have posted something. Am eagerly waiting for your next post.
2. I have been waiting to ask you about something in Asset Allocation. Its been some while that I, motivated by you, have been doing some research and have come across various forums which highlight the notion that your asset allocation decides 90% of ur returns. You had also done a bit of the same in your post”who wants to be a millionaire”. However, the post had been written with a view of Lt JUde, a 22 yr old. May I request you to cover the same with focus towards a person of approx 30-35 yr bracket.
3. Another issue which has been pestering me is the Need vs Greed debate. If i understand correctly, your ‘Greed’ must not be paid from your ‘Needs’ assets. But as I see it, whenever u start an investment, its always with a goal, more often than not being either education of kids, own house, retirement or something similar. Also, it is advocated that one must have at least 3 month salary worth money readily avlb for tiding over any emergency, so that assets are not broken prematurely. But then, how can one aim for greed (Read ‘the GOODIES of life’) if one is almost always saving for needs.
4. Lastly sir, I wish to learn from u how to do a cashflow analysis. Pl shed some light on it for the uninitiated ones like me.
5. Hoping to hear from u soon..
Regards
Anshul gaur
Next blog for you Anshul. 🙂 I was moving between places, hence the gap. Will answer the asset allocation and need vs greed thing. Thanks