Timeless investment wisdom from The Intelligent Investor
Written by Wayne Rothe •
“To invest successfully over a lifetime does not require a stratospheric IQ, unusual business insights or inside information. What’s needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework.” –The Intelligent Investor, Benjamin Graham
If you only read one investing book in your lifetime, it should be Benjamin Graham’s The Intelligent Investor. Perhaps the greatest investing book ever written, the book will make you a better investor, whether you’re a do-it-yourselfer or you use an advisor.
Graham was a mentor for none other than Warren Buffett, the greatest investor of all time, and his book is filled with the kind of folksy wisdom that Buffett has become known for. Here are some of my favourite quotes from The Intelligent Investor.
“The sillier the market’s behavior, the greater the opportunity for the business-like investor. The intelligent investor is a realist who sells to optimists and buys from pessimists.”
Most people are financially inept, making mistake after mistake, and it has dire consequences to their financial and retirement planning. When making investment decisions, they zig when they should zag. Buy low, sell high? If you can set your emotions aside and buy when things look bad, your returns should improve measurably. Good investors see opportunity amid the carnage. Buy low, not high as many do.
“How your investments behave is much less important than how you behave….The investor’s chief problem – and even his worst enemy – is likely to be himself. “
Our own behavior is, indeed, our greatest threat as investors. Investment markets don’t determine our success, but it’s how we react to them does. Make rational decisions, not emotional ones. Buy good companies and keep them as long as they remain good investments. Trade rarely, unless it’s to buy more of those good companies when their shares tumble. Buy and hold, the Warren Buffett way.
“It should be remembered that a decline of 50% fully offsets an advance of 100%.”
“Never buy a stock because it has gone up or sell one because it has gone down.”
I love good (emphasis on good) investments when they suck. The more they suck the more I like them. If Company A or ABC Growth Fund is a good opportunity at $10 a share, surely it’s a great opportunity at $5 a share as long as nothing has changed to its fundamentals.
Market declines are your greatest opportunity to buy into a rising tide at reduced prices.
“Even the intelligent investor is likely to need considerable will power to keep from following the crowd.”
The crowd is generally wrong. You’ll be more successful being a contrarian than a follower.
“The best way to measure your investing success is not by whether you’re beating the market but by whether you’ve put in place a financial plan and a behavioral discipline that are likely to get you where you want to go.”
It’s not the specific investments you buy that determine your financial success. Do you have a written, goal-based financial plan? Do you buy more of your good investments when times are bleak and your investments are under siege? These things will put you ahead of the guy who chases returns.
“Before you place your financial future in the hands of an adviser, it’s imperative that you find someone who not only makes you comfortable but whose honesty is beyond reproach.”
Do-it-yourself investors believe that they will be more successful by saving a little on their fees but having a pro guide your decisions can be far more important. I believe that most investors have neither the ability nor the interest in managing their own investments, and the mistakes they invariably make scuttle their retirement dreams.
“A defensive investor can always prosper by looking patiently and calmly through the wreckage of a bear market.”
As Sir John Templeton said, the best time to buy is when blood is running in the streets. We can’t predict the exact market bottom, but when markets are down 30 or 40 per cent, maybe it’s time to start buying. Or set up a systematic investment where money is directed monthly from your chequing account to your investment portfolio so you’re buying at all times – in up and down markets.
“Successful investing is about managing risk, not avoiding it.”
Market volatility is the friend of the intelligent, patient investor because it provides great opportunities to buy into a rising tide at sale prices.
Wishing you financial success.