Book Summary - The Intelligent Investors
The book was written by Benjamin Graham back in 1949, one of the greatest investment advisor on the 20th century. There are 5 key points that we can learn from the book :
1. Investment and speculation
Investment is done through several steps including comprehensive analytic of a particular company / sector, which minimize the risk for the capital with adequate returns. Through comprehensive analysis, it means that the stock is not just a four-letter name that has a volatile price price, but it has a real business and operations.
2. Mr. Market
What Mr. Market actually is? Mr. Market is an imaginary investor used as an allegory in his book. What can we learn is to understand that stock price moves between temporary optimism that makes a particular stock's price overpriced and pessimism where the price can steeply fall. A clever investor need to be realistic and sell his stock to optimistic person while buying the stock from who is pessimistic.
3. Risk and Return
According to the book, a risk cannot be solely measured by how instable the price is. A substantial risk can be significant when an investment is traded in way higher price compared to its fair value.
4. Buying an IPO
Benjamin Graham knows that the fast way to doubled the money is through IPOs. This is due to most IPO companies surged on the first day of listing. However, the book warns to keep an open eye to the IPO prospectus to understand the company.
5. Margin of Safety
This concept might be popular among investors now days. This concept is able to mitigate risks from false perspective towards a certain stock. The book recommends that a stock is worth to buy when the price of a stock is 50-67% compared to its intrinsic value. Thus, investors can minimize the risk as they are buying stock priced lower than the market value.
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