Book Review

The Intelligent Investor by Benjamin Graham

Reviewing “The Intelligent Investor” is a bit like deciding to review “The Bible”, people perk up a little and think to themselves “it should be interesting seein *this* guy embarrass himself”.

Apparently Ben had some really good ideas about investing. Not just kinda-good ideas, but REALLY good ideas. They made him rich, and apparently Warren Buffet got himself up to the 3rd richest man in the world by following them (so, potentially there are two other people who are following better ideas, but books aren’t available about there ideas, and even if they were available, one of those books would be in Spanish).

One of the early quotes is that Graham changed the securities industry from secretive guilds operating like medieval alchemists into a modern discipline that’s based on proper measurements. He claims by analyzing companies by the numbers that its possible to avoid the market excesses that have led to bubbles and make nice returns on your investments.

Its interesting reading books written even in the fairly recent past and comparing them to recently published books. I wanted to read Adam Smith’s “Wealth of Nations” but gave up on the first page (bleh! anyone have a nice abridged version? ;-). At certain points in the book Graham’s writing style gets overly convoluted and I would have liked him to write plainly. I read the new edition with commentaries on each chapter, which were certainly nice to get a “just the facts” version of what I’d just read.

Two chapters just got so bogged down in details that I gave up and skipped ahead (“Four Extremely Instructive Case Histories” and “A Comparison of Eight Pairs of Companies”). While Dividend Matter‘s write ups, which include the Graham’s number for the value of companies, always seems very interesting and useful, as I read the book I really didn’t think it was for me (all the background research he repeatedly demanded you to do for each company beyond the numbers just seemed like way too much work).

In the end there were two simple ideas that he suggested and I latched onto. At the beginning of Chapter 14 he suggests buying a broad number of stocks from the Dow Jones Industrial Average such that you track the market (a footnote comments that you can now do this far more easily just by buying a low-cost index fund). The plan I’m currently considering is to use my RRSP to buy equal amounts of an DJIA index-fund and a S&P 500 index fund and rebalance them every time I add money to my RRSP.

His other suggestion, which is made as a throw-away comment (sorry, I can’t find the page number) was that a decent return could be made from buying long-term dividend payers that are selling for low prices (and he makes the standard caveat to make sure they aren’t selling cheap because of very serious issues that are threatening the company).

The three things I gained from this book were a) I’m probably not cut out for individual stock analysis so I should probably steer clear of bargain hunting through the entire market b) stock indexes are probably my safest long-term bet – since I was considering this anyway I should push forward with Graham’s blessing and c) there are worse ideas than buying cheap dividend aristocrats for income.