19 Timeless Lessons From Graham's 'The Intelligent Investor'

by: David Merkel, CFA

Fifteen years ago, my mom gave me a book that would change my life: The Intelligent Investor, by Benjamin Graham. Prior to that time, I was primarily investing in mutual funds, and did not have a coherent investment philosophy. The Intelligent Investor provided me with that philosophy.

What are the main lessons of this book?

  1. Don’t overinvest in equities. Markets wash out occasionally, and it’s good to have some bonds around.
  2. Don’t underinvest in equities. Bonds can only do so much for you, and it is good to deploy capital into equities when they are out of favor.
  3. Stocks provide modest compensation against inflation risks.
  4. Avoid callable bonds. Avoid preferred stocks.
  5. Be conservative in bond investing. Read the prospectus carefully. Often a bond is less safe than one would expect, and occasionally, it offers more value than one would expect.
  6. Purchase bargain issues on a net asset value basis when you can find them, but be careful of quality issues.
  7. Volatility of stock prices can be your friend if you understand the underlying value of a well-financed corporation.
  8. Having a longer-term investment horizon is valuable, because one can take advantage of short-term fluctuations in price.
  9. Growth is worth paying up for, but be disciplined. Don’t overpay.
  10. Be wary of mutual funds.
  11. Be wary of experts.
  12. Pay attention to the balance sheet; don’t invest in companies that are inadequately financed.
  13. Review average earnings of cyclical companies.
  14. Buy them safe and cheap. Don’t overpay for growth and trendiness.
  15. Avoid highly acquisitive companies.
  16. Watch cash flow, and question unusual accounting treatments.
  17. Be careful with unseasoned (new) companies.
  18. Strong dividend policies, in companies that can support the dividends, are an indicator of value.
  19. Aim for a margin of safety in all investing.

That’s my quick synopsis of the book. Though I am not a strict Graham-and-Dodd investor (who is?), I apply the basic principles to most of what I do. This is still a relevant book today because the principles are timeless.

If you want the updated version with writing from Jason Zweig, that’s fine. You gain in current relevance, and lose a little in nuance. Graham was a very bright guy. I give Zweig credit for trying, but aside from Buffett or Munger, who would really be adequate to revise The Intelligent Investor? I don’t think I would be adequate to the task….

View/buy the Classic edition, or the Revised by Jason Zweig.

Full disclosure: I get a small payment on the sale of the books, but if you are buying from Amazon anyway, it won't increase your costs.