The ideas below are from Ben Graham’s classic book: The Intelligent Investor (1949) and articles he wrote. Ben was the founder of the strategy of value investing and Warren Buffett’s teacher and mentor.
About decision-making – The worst kind and most common kind of decision-making happens when people make decisions based on superficial analysis of inadequate information.
About risk and return – The common view is that the rate of return depends on the degree of risk one is willing to assume. Our view is different. The rate of return sought is dependent, rather, on the amount of intelligent effort the investor is willing and able to bring to bear on the investing task.
About understanding the roles of economics and psychology in investing – In the short run, the stock market is a voting machine (psychology); in the long run, it is a weighing machine (economics).
About being defense-minded – Rule #1 in investing is: don’t lose. Rule #2 is: don’t forget rule #1.
About being a rational, fact-based thinker – You’re neither right nor wrong because others agree or disagree with you. You’re right because your facts are right and your reasoning is right. Those are the only things that make you right.
About the volatile nature of the markets – Imagine you had a partner in a business named Mr. Market. Mr. Market, the obliging fellow that he is, shows up daily to tell you what he thinks your interest in the business is worth and furthermore offers to buy your interest or sell you an additional interest. On some days, the price he quotes is reasonable and justified by the prospects of the business. However, Mr. Market suffers from some rather incurable emotional problems; you see, he is very temperamental. When Mr. Market is overcome by boundless optimism or bottomless pessimism, he will quote you a price that seems to be a little short of silly. As an intelligent investor, you should not fall under Mr. Market’s influence, rather you should learn to take advantage of him.
About being a businesslike investor – Investing is most intelligent when it is most businesslike. It is amazing to see how capable business people try to operate in the stock market with complete disregard of all the sound business principles through which they have gained success in their own undertakings. Yet every corporate security may be best viewed as an ownership interest in a specific business enterprise. In seeking to make profits from security purchases and sales, investors are embarking on a business venture of their own, which must be run in accordance with accepted business principles if it is to have a chance for success.
About being an intelligent investor – Operations for profit should be based on arithmetic rather than optimism. The intelligent investor is a realist who sells to optimists and buys from pessimists.
Warren Buffett on Ben Graham: Ben Graham is the greatest teacher in the history of finance.
Red Pine view after 50 years of investing: It doesn’t always seem to be so, but these principles from Ben Graham are as relevant today as they were yesterday and as they will be tomorrow.