When someone asks me to recommend a book on investing, the answer is simple: Benjamin Graham’s revered “The Intelligent Investor.”
The classic written by Graham, the father of financial analysis and value investing, was first published in 1949.
A superstar enthusiast of Graham is Warren Buffett, one of his students at Columbia University. After graduating, Buffett worked for Graham’s company, Graham-Newman Corporation, until Graham retired.
The revised edition has now arrived. In the foreword, Buffett says, “I read the first edition of this book in early 1950, when I was nineteen. At the time, I thought it was by far the best book on investing ever written. I still think that.”
The original text is untouched and includes commentary on each chapter from Wall Street Journal writer Jason Zweig, who writes The Intelligent Investor column.
Here’s what Zweig had to say in a conversation with Yahoo Finance. Edited excerpts:
Kerry Hannon: For our readers who don’t know much about Benjamin Graham, can you tell us a little about him?
Jason Zweig: You can make a good argument that Graham was one of the most brilliant people of the 20th century. His intelligence, if it had ever been measured, would have been off the charts.
He was admitted to Columbia at the age of 17. For most of the time he was in college, he worked full-time at night. He graduated in two and a half years, second in his class. Before graduation day, he was offered professorships in three different departments. He had two US patents.
He wrote an article in the American Mathematical Society Journal at the age of 23 about how people were teaching math all wrong. He wrote two books on international trade. He was fluent in Ancient Greek and Latin. He could speak and read at least six different languages.
And he was a brilliant writer. In this new edition, we have bolded a good portion of his original text because I wanted to highlight the best passages in the book and how beautifully written they are – to help people learn from this master.
Even though it is many years after his death, his words still have incredible power and beauty. And I hope this edition will help people appreciate not only the practicality of the advice, but also how beautifully written it is.
Read more: How to Start Investing: A Step-by-Step Guide
When writing this book, Benjamin Graham was very clear what he meant by the word intelligent in the title. He says, “I don’t mean someone with a high IQ. I don’t mean someone with a PhD or a master’s degree in economics or finance. I don’t mean a professional financial analyst or a financial planner or a CPA. All I mean is that you are a good judgment and that it is much more about being wise than about being clever.”
As Graham put it, “It’s more a matter of character than of the brain.” He wanted to empower people and make it clear to them that they should not be intimidated by the fact that so many public figures in the investment world have fancy degrees and initials after their names and often seem extremely intelligent.
His point was that any person of normal, above-average intelligence should be able to do well as an investor if you follow the right principles. And that’s what the book is really about.
Has the book found a new generation of investors? Was it a completely different world 75 years ago?
That’s because there is so much unintelligent investing going on that people are craving the ideas you need to be an intelligent investor. It has never been easier to be an investor, but it has never been more difficult to be an intelligent investor because there is so much propaganda coming out of Wall Street. There is so much crap on social media. There is so much pressure on your smartphone to trade, trade, trade and follow the crowd. And it’s easier than ever to make stupid mistakes. And if the book does its job, it will help people avoid these mistakes.
To what extent did Buffett collaborate with you on this edition of the book?
When I did the previous revised edition of the book in 2003, he gave me some tips on some places to look and things to think about. This time he was pretty much hands-off. I think he feels like the book speaks for itself at this point.
I have left the original technical text completely intact. All I did was footnote it, as some of these references are a bit dated; not everyone who doesn’t play Monopoly knows what the Reading Railroad was. But I also wrote an accompanying commentary for each of Graham’s twenty chapters. So there are twenty chapter commentaries, and they’re all new for 2024. And that’s my contribution.
How does this classic advice fit into current market reality?
Graham teaches us a handful of basic principles that are so important to success as an investor.
One is that he teaches us to understand that stocks are part of the ownership of a business enterprise. It’s not a beep on your cell phone screen. It’s something organic. You own a part of a company that either excites its customers to be part of the community or turns them off. And it will generate either a growing cash flow or a shrinking cash flow over time.
That’s what you need to focus on if you want to call yourself a stock investor. You need to understand that you are buying part of a company. You don’t buy a spinning slot machine reel masquerading as a stock quote.
Graham writes about being an investor and a speculator. Can you explain this?
A speculator is someone who only cares about what the next person thinks this thing is worth. An investor tries to understand what it is worth as a company, rather than chasing the share price.
Just because millions of strangers are also trading doesn’t mean you should too. It doesn’t mean they know what they’re doing. That doesn’t mean that even if they know what they’re doing, you should try too.
And as a result, because we live in this networked, online, completely wired world, we have to be more wary of the bad influences of other people and technology than ever before. And that makes his principles even more powerful.
“The Intelligent Investor” returns for its third edition – 75 years after its original publication date. Wall Street Journal writer Jason Zweig, who writes The Intelligent Investor column, comments and highlights key principles that stand the test of time. (Photo courtesy of Jason Zweig) ·Jason
Let’s talk about the role technology plays for the individual investor today. Good or bad thing?
When it comes to investing, we get the institutional message from Wall Street that technology has leveled the playing field. The essence of that message is that you can beat the professionals at their own game. And this is the most dangerous possible message that individual investors should receive.
You can beat the professionals, but not if you play their game. One of the most widely understood statistics about the stock market is that 80% of professional fund managers underperform the market. So why would I even want to play that game?
Graham’s message is that the fundamental advantage of the intelligent investor is not caring what other people do. You don’t care how they invest, or if someone else beats the market.
You don’t care if someone else buys a stock at stupid prices. You don’t have to do it either. If someone else panic sells, you don’t have to panic sell. You can ignore what everyone else is doing.
And if you organize your financial life around the principle of independence, instead of following the crowd and Wall Street and the technology it puts on our smartphones that is designed to distract us from that idea, then investors can take control to take over. Not by trading more, but by trading less and investing smarter.
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Graham makes this major distinction between defensive and entrepreneurial investors. Can you share?
The conventional way to categorize investors is to call them conservative, moderate or aggressive, based on the amount of risk you think you’re willing to take – or some silly quiz says you’re willing to take.
Graham says forget all that. There are two types of investors – defensive and entrepreneurial – and this has nothing to do with your tolerance for risk. A defensive investor is not necessarily someone with a conservative portfolio. It is someone who simply does not want to put in the time, effort and energy required to be an active investor.
Your goal is to live a low-maintenance life. And Graham says, that’s fine. There’s nothing wrong with that. If you are a defensive investor, you can very defensively buy three to five index funds or ETFs and hold them for the rest of your life, without really doing anything else. That is the ultimate defensive investor.
An enterprising investor is someone who likes to spend part of the weekend analyzing data on stocks and funds, asset allocation and global markets. And if you’re the kind of person who likes to spend some of your free time and a good deal of your mental energy analyzing investments, then you’re enterprising.
Kerry Hannon is a senior columnist at Yahoo Finance. She is a career and retirement strategist and author of fourteen books, including ‘In control at 50+: how to succeed in the new world of work” and “Never too old to get rich.” Follow her on X @kerryhannon.
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