When anyone asks me to recommend one book on investing, the answer is simple: Benjamin Graham’s venerated “The Intelligent Investor.”
The classic written by Graham, the father of financial analysis and value investing, was first published in 1949.
One superstar devotee of Graham is Warren Buffett, who was one of his students at Columbia University. After graduation, Buffett worked for Graham’s company, Graham-Newman Corporation, until Graham retired.
The revised edition has now landed. In the preface, Buffett weighs in: “I read the first edition of this book early in 1950, when I was nineteen. I thought then that it was by far the best book about investing ever written. I still think it is.”
The original text is untouched and features commentary on each chapter from Wall Street Journal writer Jason Zweig, who writes The Intelligent Investor column.
Here’s what Zweig had to say in a conversation with Yahoo Finance. Edited excerpts:
Kerry Hannon: For our readers who don’t know much about Benjamin Graham, can you tell us a little about him?
Jason Zweig: You can make a good case that Graham was one of the most brilliant people of the 20th century. His intelligence, had it ever been measured, would’ve been off the charts.
He was admitted to Columbia when he was 17. He worked a full-time job at night for much of the time that he was in college. He graduated in two-and-a-half years, second in his class. He was offered professorships in three different departments before graduation day. He held two US patents.
He wrote an article in the American Mathematical Society Journal when he was 23, about how people were teaching calculus all wrong. He wrote two books on international trade. He was fluent in ancient Greek and Latin. He could speak and read at least six different languages.
And he was a brilliant writer. We bold-faced quite a bit of his original text in this new edition because I wanted to highlight the best passages in the book and how beautifully written they are — to help people learn from this master.
Even though it’s many years after his death, his words still have incredible power and beauty. And I hope this edition will help people appreciate not just the practicality of the advice, but how magnificently written it is.
Benjamin Graham was very clear when he wrote this book what he meant by the word intelligent in the title. He says, “I don’t mean somebody with a high IQ. I don’t mean somebody with a PhD or a master’s in economics or finance. I don’t mean a professional financial analyst or a financial planner or a CPA. All I mean is that you should have good judgment and that it’s much more like being wise than being smart.”
The way Graham put it was, “it’s more a matter of the character than of the brain.” He wanted to empower people and to communicate to them that they shouldn’t be intimidated by the fact that so many of the public figures in investing have fancy degrees and initials after their names and often seem extraordinarily intelligent.
His point was that any person of regular, above-average intelligence should be able to do well as an investor if you follow the right principles. And that’s what the book is really about.
Has the book found a new generation of investors? It was a whole different world 75 years ago?
It has because there’s so much unintelligent investing that people crave the ideas that you need to have in order to be an intelligent investor. It’s never been easier to be an investor, but it’s never been harder to be an intelligent investor because there’s so much propaganda coming from Wall Street. There’s so much garbage on social media. There’s so much pressure on your smartphone to trade, trade, trade and to follow the crowd. And it’s easier than ever to make stupid mistakes. And if the book does its job, it’ll help people avoid those errors.
How much did Buffett work with you on this edition of the book?
When I did the previous revised edition of the book in 2003, he did give me some tips on a couple of places to look and things to think about. This time he was pretty much hands-off. I think he feels that the book speaks for itself at this point.
I left the original tech text completely intact. All I did was annotate it with footnotes because some of these references are a little dated — not everybody who doesn’t play Monopoly knows what the Reading Railroad was. But I also wrote for each of Graham’s 20 chapters an accompanying commentary. So there’s 20 chapter commentaries, and those are all new for 2024. And that’s my contribution.
How does this classic advice fit into today’s market realities?
Graham teaches us a handful of basic principles that are so important for success as an investor.
One is he teaches us that we should understand that a stock is a share of ownership in a business enterprise. It’s not a blip on your cell phone screen. It’s an organic thing. You own a piece of a company that is either making its customers thrilled to be part of the community, or turning them off. And it either will generate a growing stream of cash over time, or a shrinking stream of cash.
That’s what you need to focus on to call yourself an investor in stocks. You need to understand that you’re buying a piece of a business. You are not buying a spinning slot machine reel that masquerades as a stock price.
Graham writes about being an investor and a speculator. Can you elaborate?
A speculator is somebody who cares only about what the next person thinks this thing is worth. An investor is trying to understand what it’s worth as a business rather than chasing the price of the stock.
Just because millions of strangers are also trading something, that doesn’t mean you should. It doesn’t mean they know what they’re doing. It doesn’t mean that even if they do know what they’re doing, you should try it too.
And as a result, because we live in this networked, online, totally wired world, we have to be more on our guard against the bad influences of other people and technology than ever before. And that makes his principles even more powerful.
“The Intelligent Investor” returns for its third edition—75 years after its original publication date. Wall Street Journal writer Jason Zweig, who writes The Intelligent Investor column, comments and highlights the key principles that stand the test of time. (Photo courtesy of Jason Zweig) ·jason
Let’s talk about the role technology plays for the individual investor today. Good or bad thing?
When it comes to investing, we get an institutional message from Wall Street that technology has leveled the playing field. The essence of that message is that you can beat the professionals at their own game. And this is the most dangerous possible message that individual investors should get.
You can beat the professionals, but not if you play their game. One of the most commonly understood statistics about the stock market is that 80% of professional fund managers underperform the market. So why would I even want to play that game?
Graham’s message is that the basic advantage of the intelligent investor is you don’t have to care what other people are doing. You don’t have to care how they invest, or if somebody else is beating the market.
You don’t have to care if somebody else is buying a stock at stupid prices. You don’t have to do it, too. If someone else is selling in a panic, you don’t have to sell in a panic. You can ignore what everybody else is doing.
And if you organize your financial life around the principle of independence, rather than following the crowd and Wall Street and the technology that it puts on our smartphones that is designed to distract us from that idea, that’s how investors can seize control. It’s not by trading more, but by trading less and investing more smartly.
Graham draws this great distinction between defensive and enterprising investors. Can you share?
The conventional way to put investors in buckets is to call them conservative, moderate, or aggressive based on the amount of risk you think you want to take — or some goofy quiz says that you are willing to take.
Graham says, forget all that. There are two kinds of investors — defensive and enterprising — and it has nothing to do with your tolerance for risk. A defensive investor is not necessarily somebody with a conservative portfolio. It’s somebody who simply doesn’t want to be bothered putting in the time and effort and energy it takes to be an active investor.
Your objective is to have a low-maintenance investing life. And Graham says, that’s fine. There’s nothing wrong with that. If you’re a defensive investor, you could very defensively buy three to five index funds or ETFs, and hold them for the rest of your life and not really do anything else. That’s the ultimate defensive investor.
An enterprising investor is somebody who enjoys spending part of the weekend analyzing data about stocks and funds and asset allocation and global markets. And if you are the kind of person who enjoys putting some of your spare time and a lot of your mental energy into analyzing investments, you’re enterprising.
