Key takeaways/lessons from THE INTELLIGENT INVESTOR-Benjamin Graham by Tuhin Chakraborty

-Tuhin Chakraborty 

Widely considered as the definitive book of value investing. This is also the book which taught the legendary Warren Buffett about investing. 

• Investing vs speculating:

In Graham's words, "An investment operation is one which, upon thorough analysis promises safety of principal and an adequate return. Operations not meeting these requirements are speculative."

So, even before thinking of investment one must develop the mindset of investing and understand the differences between these two. To be a successful investor one should follow the story of his investment and then connect it to the numbers supporting the story.

• Inflation:

it's the fancy economic term for advances in prices of goods or in other words, it's the shrinkage of purchasing power of our money in real terms. In a growing emerging market economy like India, the average historical inflation rate has always been in the moderate to high range. And our popular investment vehicles like savings accounts and fixed deposits always failed to beat inflation on a broader level. So the first step for developing an investment mindset is that you should only invest in such assets whose returns exceed the rate of inflation- the single most important reason not to be idle with our money.

• Portfolio policy for the Defensive Investor:

A defensive investor is an individual who is not enthusiastic about researching and picking stocks for him. Rather, he wants some professional help. Best for such people is owning a low cost index fund and investing in it on a monthly basis. In this simple and boring way he is well diversified and regular SIP induces the habit of savings.

To hedge against uncertain market fluctuations, he should also allot some percentage of his portfolio in low cost debt funds and gold funds. Such a simple and well diversified portfolio can give our defensive investor a return anywhere between 10 to 15% without too much worry in the average market scenario.

• Portfolio policy for Enterprising Investor:

An enterprising investor is the one who is willing to do the work of stock picking and researching himself. For such investors, they should start investing in good blue chip shares and then as they spend more time in the market and gain expertise and experience, then they should invest in some mid and small cap companies with good prospects and moderate valuations. But, a beginning enterprising investor should only allocate less than 50% of his portfolio on individual stocks and for the rest 50% of his portfolio he should follow the portfolio policy of a defensive investor.

• Market fluctuations:

According to Graham, market fluctuations are a blessing in disguise for value investors. Because only in such times, they can find some good bargains and buy them. It's also advisable if the fundamental prospects of the underlying company isn't justifying a major price decline of its stock. You should buy such stocks more than selling in panic. It's always tough to hold and wait when you see half of your portfolio wiped out in a market crash, rather than selling in panic. But it

also the best time to hunt for bargains. Almost the same is also true for a rapidly advancing market, if according to your due-diligence the market seems

overvalued then you can book some profits in the stock portion of your portfolio and put that money into debt and gold components of your portfolio.

•  Investment funds:

Passively managed low cost index funds consistently generated higher returns than most high cost actively managed funds in the long run.

•  Investment gurus:

A beginner retail investor should learn himself rather than following fake Twitter gurus. Still, if he wants some advice, then should only contact real legitimate investment advisers with a good past track record.

• Security analysis for lay investors:

An enterprising investor must learn the basics of financial statement interpretation and analysis. In this way, he can find signs of prosperity and despair in the accounting statements of companies and accordingly take the best possible decisions for him. And also he should observe the work of the management of the companies in both good and bad times. And he should also look for any potential conflict of interest between managers and outside shareholders.

• Different investment vehicles for retailers:

A beginner retailer should trade less frequently as frequent trading is heavily punished by taxes as well as brokerage costs. And he should also limit himself to the cash market only. Trading in derivatives without knowledge is very much injurious to wealth. As a rule of thumb, he should only limit himself to individual stocks, index funds, debt funds and maybe some commodity funds.

• Margin of safety:

No matter how much time you spend on researching and picking stocks, you're basically predicting the future. So it's best to mitigate your risk with careful proper diversification. In this way you're actually increasing your odds of success in investing.

The Intelligent Investor provides a beginning with the correct emotional mindset and intellectual framework to begin with investing. I strongly suggest you read this book and The Security Analysis by Graham and Dodd to gain more technical knowledge of bargain hunting and security analysis.