The Intelligent Investor

“The Intelligent Investor” is a book about value investing. Value investing is an investment strategy that seeks to buy stocks trading for less than their intrinsic value.

Investment vs Speculation

Speculating involves guessing about the possible future price of a stock from past history of the stock, it is like gambling. Investing involves thorough analsysis promising safety of principle and an adequate return.

Enterprising vs defensive investor

The book classifies two classes of intelligent investors: “defensive” investors (who are seeking to protect their capital but generate only modest returns) and “enterprising” investors (who are willing to take more risk in exchange for higher returns).

To calculate the intrinsic value, Graham emphasizes the importance of fundamental analysis. He suggests considering various factors, including the company’s earnings, dividends, assets, liabilities, growth potential, competitive position, and overall financial health. By carefully analyzing these factors, an investor can estimate the future earnings and cash flows that the company is likely to generate.

It’s worth noting that Graham’s approach to calculating intrinsic value involves a combination of quantitative analysis and subjective judgment. While he provides a framework for evaluating stocks, he acknowledges that it is not an exact science and that investors should exercise caution and make their own judgments based on their understanding of the company and the broader market conditions.