The Intelligent Investor Summary (Benjamin Graham)
Successful investing does not require stratospheric IQ Insider information or lock for that matter is that what’s needed is a sound intellectual framework for making decisions combined with an ability to keep emotions from Rudy in the intelligent investor Benjamin Graham percent such a framework together with logic that will help to keep your emotions under control RGB PC strategy has been one of the most successful walls during the last hundred years in prison records, not just a play on himself, but also numerous of his disciples are impossible to ignore among these the brightest shining star is Warren Buffett you at the time of this video making is the third wealthiest man in the world Warren Buffett refers to this book has by far the best book on investing ever written in this video out percent the in my opinion greatest takeaways from the book.[0:00:48-0:01:48]
Take me to meet Mr. Market imagine that you own a business that you paid $1,000 for every day at certain Bipolar person called. Mr. Market comes to your home then opinion about how much your part of that business is what the office to buy your share or sell you an additional one on that basis history has shown that opinion about how much your part of the business is can be pure gibberish Princeton back in March 2012 your share to be a $2,600 only one year later in March 2001. He thought he was worth $500 even though the income of the company increased with 50% of the profit increased by 20% during the same period should you let this guy decide how much is $1,000 of interest in that business is worth of course, not one of Graham’s core principles is there a stock is not is the ticker symbol combined with the price tag. It’s an ownership interest in a business and because mr. Market isn’t always rational the underlined value of[0:01:48-0:02:47]
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Business can differ from the price. He’s willing to pay for it. In fact, he frequently it’s over or under bright as Market easily becomes over optimistic or conversely too pessimistic Graham. And that’s only if you would feel comfortable to hold a stock in the future without seeing the fluctuating prices that missed market for sent you with but for the investor who can keep his head cool, mist and wallpaper sent a great possibility of making money. So he doesn’t force you to strike a deal with them Ameriprise sent you with the opportunity of doing so you should be happy to self employment office prices that are ridiculously high and similarly you should be happy to buy from him when he presented with all games. We must consider that at the time when Graham wrote this book people were faultless bombarded with news forecast stock quote answer one then we are today back in the 1970s Bismarck Tribune together with the morning newspaper today. He wants to do business with us every time we open our phone, which if you’re anything like me is smaller than a hundred times every day just because Market visit you more often.[0:02:48-0:02:57]
Mean that you must trade with him any more frequently than people had to in the 1970s. If he doesn’t resent you with an offer that meets your standards ignore him and move on with your day.[0:02:59-0:03:55]
Take away number to talk to Miss Tessa defensive avesta. There are two types of according to Greyhound the defensive or passive one and enterprising or after you want those people are better suited for the defensive strategy as the time. They’re willing to dedicate to investing is limited the defensive a message to create a portfolio with a mixture of bonds and stocks say 50 Cent stocks and bonds know that how much you should devote to each asset category depends on the situation and the current difference in the average yield of stocks vs bonds Ryssdal this application once or twice every year so that they compared to only 40% in bonds sell stocks and buy bonds until 50/50 is restored. You must have fixed amount of capital at regular intervals for instance straight after you get your salary. This is dollar cost averaging. I will allow for a spare average price of stocks and bonds. Most of all it would have shown that you don’t concentrate you’re buying at the wrong time.[0:03:55-0:04:48]
List all components of the portfolio should aim for the following 8 application in the companies. He invested 10 to 30 companies should be adequate also make sure that you are not over as both just single industry to the company should be launched which crime defined as generating more than a hundred million dollars in yearly sales after inflation. This equals approximately seven hundred million dollars into the street. Look for companies that finance company has it so cold current ratio of at least 200% This means that its current assets are at least twice as big as its current liabilities for dividend. Should I be paid to shareholders for at least the last 20 years 5 in the last 10 years 6 at least 33% growth in earnings during the last ten this translates to a conservative growth all the 2.9% annually.[0:04:48-0:05:40]
Set up don’t overpay for assets. The price of the stock should not be higher than 1.5 times its net asset value the net asset value can be calculated by subtracting. The company’s liabilities from its assets 8 don’t overpay for Ernest either. Don’t let the PE Ratio be higher than 15 when using the last 12 months earnings and I’ll turn it in today. It’s reversed in an index, which by definition will have returned similar to the average of the market. If you are satisfied with an average reward to we’re investing you only need these to forsake ways. However, if you tell someone you will also need to consider taking a number 3 how to invest as an enterprising investor as it’s so easy for the defense of a messed up to get the average return of the market. It would seem a simple matter to beat the market you just about a little more time to Mystic police average you message to write.[0:05:41-0:06:22]
To be an enterprising investor how to beat the market is much more demanding the social logic suggests. It requires patience discipline and eagerness to learn a lot of time many professionals and private investors alike aren’t suited for this. It’s easier to fall victim to the price of operations of mr. Market. I wanted possibly imagine. Just listen to these two statements from the early 2000s at the peak of the.com bubble made by the chief investment strategist at two large mutual funds. It’s a new world order. See people just got all the right companies with all the right people with us because they stock price is too high. That’s the worst mistake an investor can make[0:06:22-0:07:22]
Is the stock market risk it today and then two years ago, simply because the prices are higher the answer is no but the answer is yes. Yes. Yes, of course both statements turn out to be costly for the investor to put their money in these phones since the profits that companies can of finite the price the intelligent investor should be willing to pay for these companies must also be fine. Price of truly an important factor for the Enterprise just like the market tends to overvalue companies. Are they having growing fast or as glamorous was Mother Teresa attend to undervalue the ones with unsatisfactory development growth stocks as much as possible by simply because the investment decision is based relatively more on future earnings and future earnings or less reliable than current valuations. If you can find a company which is valued lower than its net working capital. You essentially pay nothing for all the fixed assets such as buildings machinery and Goodwill Etc. The net working capital can be calculated by[0:07:22-0:08:09]
Tracking total liabilities from current asset South companies with proven Trulia profitable during Greyhounds investment Korea Unfortunately, they are wrapped today except during Tough by Marcus Graham suggest an additional method of finding Investments for the enterprising investor. These criteria are similar to the ones that the defensive a message to juice. But the constraints are looser. Not that there is no constraint at all regarding company size. Also some diversification should be applied. But the number of companies Health isn’t carving stone for the active investor in a company the enterprising investor should also study its annual Financial reports in the whole book on the subject called the interpretation of financial statements so we can speak more about this on another occasion.[0:08:10-0:09:10]
Take me to insist on the margin of safety. This one risk. No, careful consideration can truly eliminate the risk of being wrong. You can’t however minimize this risk to do this. You must assistant. Every investment has a margin of safety as mentioned before the price and value of company is not always the same when the price is at most two thirds of its calculated value the investors found a company with enough margin of safety. You wouldn’t construct the ship that sinks if 31 Bike and Board it if you know that it regularly will be used to transport 30 of them. Neither. Should you invest in stock that you think is worth say $31 if it currently is priced at $30 it might be that your calculation is wrong in the first case a group of angry and wet down in the second. You might postpone your Financial Freedom by couple of years. I don’t know which situation that I consider to do us use margins of safety formula used in the book can give you some heads-up regarding what the value of a company’s and therefore also if you can be bought[0:09:10-0:09:31]
With a margin of safety value equals to current normal earnings * 8.5 + 2 * expected annual growth rate. The growth rate should be equal to the expected yearly growth rate of earnings for the next seven to ten years three largest companies of the S&P 500 a worth according to the formula in September 2018.[0:09:32-0:09:52]
Note that we can use the formula backwards to to trace how much these companies must grow in the coming 7 to 10 years for today’s stock prices to be rational. This is huge discrepancy here Amazon is expected to grow at 74% per year. According to its stock price. What apple is expected to grow at a 5.8% Do you think that this is reasonable?[0:09:54-0:10:52]
Take risk and reward on not always correct it according to academic Theory the rate of return which an investor can expect must be proportional to the degree of risk that he’s willing to accept. This is the measured as the volatility of the Returns on the investment meaning how much it has different historically from is expected value. Graham doesn’t agree with the statement instead. He argues that the price and value of assets often are disconnected the return the domestic can expect it’s a function of how much time and effort. He brings it if the suit of binding bargain as it’s the minimum return goes to the defensive opacity. What’s the maximum goes to the enterprising investor exercises maximum intelligence and skill. It’s 4 a.m. In the morning and you’ve been out drinking in the streets of Moscow together with your friends you decide that it’s too early to call it a night and therefore you end up in the middle of ski reports of town at a particularly and big is bought you were approached by a man. Who asks, do you want to play a game?[0:10:54-0:11:54]
You’re braver Stanley sober friend replies the man puts a revolver in front of you which is loaded with a single bullet. I’ll give you $10,000. If you do have to take a shot Russian Roulette your drunk friend reaches but you stop it. I think we’ll pass on this one. You would like to inform the man. I thought so he replies what about $100,000 per taking two shots. Now the story represents the Academic Way of demanding a higher potential reward for taking a higher risk in the first offer. You received $10,000 at a 16.7% risk of blowing your brains out in the second half of the reward is $100,000 because the risk of putting a hole through your head as increased to 33.3% seems logical right but stock market doesn’t have to be like that. Remember that price and value are not the same when you buy a company at sixty cents on the dollar. You have a great potential reward and a low risk for them or if you can find another company that you can buy at forty cents on the dollar you have found it even better.[0:11:54-0:12:05]
Combined with an even lower risk. How could anyone in their right mind argue that it’s riskier to buy a dollar at the price of $0.40 that you buy at all that $0.60 just because the potential reward is higher.[0:12:07-0:13:06]
Quick recap of the five takeaways the market tends to be over-optimistic add too pessimistic from time to time. Don’t let this invoice. What do you think the true value of your assets are instead see it as a business opportunity. Would you get to deal with a person who has no idea what he’s doing? Secondly the defensive investor should go for a diversify portfolio of stocks and bonds or the store category consists of primary low price tissue study. The enterprising investor should also anxious dogs that show lower-priced entities if he can find a company that is trading below its net working capital. He might have found his Eldorado the full take away is that the intelligent investor should insist on a margin of safety when acquiring an acid and find it take away number 5 is at risk and reward aren’t necessarily correlated. What do you think of brands of ice? Are they still sell play ball today at the world back in the 1970s share your thoughts with other viewers in the comments below as always if you want me to summarize the specific book on investing personal finance bill money management. Please call me.[0:13:07-0:13:16]
As well and if you find that any of the takeaways of this book is especially interesting. I want me to elaborate on it. Don’t be shy you make comments on that, too. Thanks for watching guys and have a good one.
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