THE INTELLIGENT INVESTOR by Robert Graham (personal summary) [ in progress]

Translate by Machine Gogle and Deepl

AFTER 20,000 (1)

this summary is based, with the exception of some key chapters, on Jason Zweig's comments made around 2000 - in the midst of the dot COM crisis - on the 1970 text. 

The personal reflections are, 

the summary itself, as I have chosen what seems to me, 

the highlighted ones, 

and notes that appear on the right hand side

Preface to the fourth edition, by Warren E. Buffett

What is needed is an intellectual infrastructure for decision-making and the ability to prevent emotions from deteriorating that infrastructure.

Whether or not you achieve extraordinary results will depend on the effort and intellect you apply to your investments, as well as the swings caused by market irrationality that occur during your investment career. The more irrational the market behavior, the more opportunities the investor will have to behave professionally.

BENJAMIN GRAHAM 1894 – 1976

His counsel of good sense brought endless rewards to his followers, even those with inferior natural abilities to those of the most gifted professionals who failed to follow those who advocated brilliance or fashion.

(Reprint from Financial Analysts Journal, November – December 1976.)

 

A Note on Benjamin Graham by Jason Zweig

— A stock is not a simple symbol on a stock chart or an electronic pulse; It is an ownership stake in a real business, with an underlying value that does not depend on the share price.

— The market is a pendulum that constantly swings between unsustainable optimism (which makes stocks too expensive) and unwarranted pessimism (which makes them too cheap). The intelligent investor is a realist who sells to optimists and buys to pessimists.

— The future value of all investments is a function of their current price. The higher the price paid, the lower the profitability obtained.

— No matter how much care is taken, the only risk that no investor can completely eliminate is the risk of being wrong. Only by insisting on what Graham called the “margin of safety”—never paying too much, no matter how interesting an investment may seem—can you minimize the chances of making a mistake.

Introduction: What is intended to be achieved with this book

We must state from the beginning that this is not a "how to make a million" book. There are no sure and easy ways to achieve wealth in the stock markets, or anywhere else.

This mark could be seen as a compelling argument for the principle of monthly periodic purchases and solid common stock during good times and bad, a program known as "monetary cost averaging . "

The only principle applicable to practically all of these so-called "technical methods" is that you should buy because a security or the market has risen and you should sell because it has fallen. It is the exact opposite of any valid business principle in any other arena that is absolutely unlikely to lead to lasting success in the stock market. In our own experience and observation of the stock market, spanning over 50 years, we have not met a single person who has made money consistently or lastingly by applying that “follow the market” principle.

The depth of the market downturn experienced in 1969-1970 should have served to dispel an illusion that had gained ground over the previous two decades. This illusion claimed that the main common shares could be purchased at any time and at any price, with the guarantee not only that profits would ultimately be made, but also that any losses suffered in the meantime would be quickly recovered thanks to a renewed market recovery to new high levels. It was too advantageous a situation to be true.

In the area of many second- and third-tier common stocks, especially in the case of companies recently admitted to trading, the chaos caused by the latest market crash was catastrophic. It is not that it was a novelty in itself, given that something similar had already happened in 1961-1962, but in the current case there has been a novel element in the sense that some of the investment funds had extraordinarily large commitments in emissions. speculative and obviously overvalued of this type . It is obvious that not only should the beginner be warned that although enthusiasm may be necessary for great achievements elsewhere, in the stock market it almost certainly leads to disaster.

In the past we have made a basic distinction between the two types of investors this book was aimed at: the "defensive" and the "entrepreneurial."

The defensive (or passive) investor is one who focuses mainly on avoiding mistakes or serious losses. Your second objective will be to avoid having to carry out great efforts or procedures and to be exempt from the need to make frequent decisions.

The determining trait of the entrepreneurial (or active, or dynamic) investor is his desire to dedicate time and effort to selecting a set of securities that are at the same time sensible, solid and more attractive than average. Over many decades such an enterprising investor could expect that his additional efforts and capabilities would bring him a satisfactory reward, in the form of a better average than that obtained by the passive investor.

...

To make this point clear from the beginning, let us introduce here a paragraph that we first incorporated in the 1949 edition of this book:

Such an investor could, for example, be a buyer of air transport stocks because he believes that their future is even brighter than the trend already reflected in the market today. For this type of investor the value of our book will lie more in the warnings against the hidden traps in his favorite investment method than in any positive techniques that may be of practical use along the path he has chosen.

These traps have proven to be especially dangerous in the aforementioned sector. Of course, it was easy to foresee that the volume of air traffic would grow dramatically over the years. Because of this factor, shares in this sector became one of the favorite options of investment funds. However, despite the expansion of revenues, at a rate even higher than that of the IT sector, the combination of technological problems and the excessive expansion of capacity caused fluctuations in profit figures that were even disastrous at times.

Fashions are dangerous...they can give momentary profits...in a short time...

The key is to DIVERSIFY

.

Two lessons can be drawn from these two general examples for our readers:

1. The obvious physical growth prospects of a sector do not translate into obvious benefits for investors.

2. Experts do not have reliable ways to choose and concentrate their investments in the most promising companies in the most promising sectors.

.

We will talk a lot about the psychology of investors, because undoubtedly the investor's main problem, and even his main enemy, is very likely to be himself. ("The fault, dear investor, is not in our stars, and it is not in our actions, but in ourselves...")

..

Additionally, we hope to implant in the reader the tendency to measure or quantify . Regarding 99 out of every 100 issues, we could say that at a given price they are cheap enough to buy, and at another given price they would be so expensive that they should be sold. The habit of relating what you pay with what you offer is an invaluable trait when investing.

..

Strikingly, we will suggest that one of our essential requirements in this area is that our readers limit themselves to issues that sell not much above the value of their material assets .* The reason for this apparently outdated advice is both practical and psychological in nature. time. Experience has shown us that although there are numerous companies with good growth that are worth several times the value of their assets, the buyer of such stocks ends up being excessively exposed to the vagaries and fluctuations of the stock market . On the contrary, the investor who allocates his funds to shares of, for example, public service and supply concession companies whose listing implies that it is possible to buy these companies practically for the value of their net assets can always consider himself the owner of a participation in some solid and expanding companies, acquired at a rational price, regardless of what the stock market may say to the contrary

.

Given that anyone can match the average market performance by simply buying and holding a representative basket of prices, it might seem comparatively easy to improve the average; However, it is a fact that the proportion of intelligent people who try to achieve that result and fail is surprisingly large.

.

When writing this book we have tried to keep this basic investment trap in mind. The virtues of a simple portfolio policy, the acquisition of high-grade bonds in combination with a diversified portfolio of major common stocks, have been highlighted, which any investor can implement with little expert input .

Comment on the introduction

Keep in mind that Graham announces from the beginning that this book is not going to tell you how you can beat the market. No trustworthy book can do that.

.

In the boom years of the late 1990s, when technology stocks seemed to double in value every day, the notion that virtually all the money invested could be lost seemed absurd; However, by the end of 2002, many of the dot-com and telecommunications companies had lost 95% of their value or more. After losing 95% of the money, you need to win 1,900% just to get back to where you started. Taking crazy risks can put you in such a desperate situation that it is virtually impossible to recover. That is why Graham constantly emphasizes the importance of avoiding loss, and he does so not only in chapters 6, 14, and 20, but in the threads of warning with which he has woven throughout the text .

No matter how careful you are, the price of investments will drop from time to time. While no one can eliminate that risk, Graham will show you how you can manage it—and how you can control your fears.

Are you a smart investor?

There is evidence that a high IQ and a strong educational background are not enough to make an investor smart. In 1998, Long-Term Capital Management LP, an alternative management investment fund run by a battalion of mathematicians, computer scientists, and two Nobel-winning economists, lost more than $2 billion in a matter of weeks by betting a huge amount on that the bond market would return to a "normal" situation. However, the bond market continued to insist that its situation was becoming more and more "abnormal", and LTCM had become indebted to such a level that its bankruptcy was on the verge of sinking the global financial system.

In the spring of 1720, Sir Isaac Newton held shares in the South Sea Company, the most prized stock in England. Under the impression that the market was getting out of control, the great physicist commented that "he could calculate the movements of the celestial bodies, but not the madness of people." Newton disposed of his shares in the South Sea Company, pocketing a 100% profit amounting to £7,000 . However, months later, carried away by the exuberant enthusiasm of the market, Newton again took a stake in the Company at a much higher price, and lost more than 20,000 pounds (or more than three million dollars in today's money). For the rest of his life he forbade anyone to utter the words "South Sea" in his presence. Sir Isaac Newton was one of the most intelligent men who ever lived, using the concept of intelligence that we most commonly use. However, in Graham's terms, Newton was far from a smart investor. By letting the roar of the crowd prevail over his own judgment, the world's greatest scientist acted like a fool.

Simply put, if your investments have failed so far, it's not because you're stupid. It is because, like Sir Isaac Newton, he has not acquired the emotional discipline that is essential to success in investing. In Chapter 8 Graham explains how intelligence can be improved by using and controlling emotions and refusing to stoop to the level of market irrationality. In that chapter you can learn the lesson that being a smart investor is more a matter of "character" than "brain."

Chronicle of a calamity

..

8. A stock market that, even after its bloody decline, appears overvalued by historical measures, and that suggests to many experts that stocks have even further to go down.

.

In Graham's own words, "although enthusiasm may be necessary for great achievements in other areas, on Wall Street it almost invariably leads to disaster."

,

They have ignored Graham's warning that "the really horrible losses" always occur after "the buyer forgot to ask how much it cost."

The shot that ended up missing the target

All these so-called experts ignored Graham's sensible words of warning: "A company's obvious physical growth prospects do not translate into obvious profits for investors." Although it seems easy to predict which sector will grow the fastest, that forecasting ability has no real value if most other investors already predict the same thing. By the time everyone decides that a particular industry is "obviously" the best one to invest in, the stock prices of the companies in that sector

They will have risen so much that their future profitability will not be able to evolve except downwards.

The silver lining.

If in the 1990s no price seemed too high for stocks, in 2003 we have reached a point where no price seems low enough. The pendulum has swung, as Graham knew it always does, from irrational exuberance to unjustifiable pessimism. In 2002, investors withdrew $27 billion from mutual funds, and a study by the Securities Industry Association found that one in 10 investors had reduced their stock portfolio by at least 25%. The same people who were willing to buy stocks in the late 1990s, when they were rising and therefore very expensive, were selling stocks as they were falling and therefore cheap .

As Graham brilliantly shows in chapter 8, this is exactly the opposite of what to do. The intelligent investor realizes that stocks become riskier, not less risky, as their prices rise, and less risky, not more, as their prices fall.

 

This entire introduction fulfills its task of being an introduction to the book.

*A stock is worth what the company is really worth, not what the market is saying at that moment

*Since yes or yes, the market is going to go down, it is essential to have DIVERSIFICATION: the old adage of NEVER putting all your eggs in one basket

*It seems logical, but it is part of the least common of senses. the common one: you DO NOT buy rising, expensive shares; and then sell them at a discount:; cheap which is what the market generally wants. YOU SHOULD ACT REVERSE.

 

Chapter 1

Investing vs. Speculation: Results the Intelligent Investor Can Expect

 

Investment as opposed to speculation

Already in 1934, in our textbook Security Analysis , 1 we tried to formulate precisely the difference that exists between the two, of the

follows : «An investment operation is one that, after carrying out an exhaustive analysis, promises the security of the principal and an adequate return. Operations that do not satisfy these requirements are speculative .

 

Common stocks were widely considered speculative by their very nature. (One important authority stated, without qualification, that only bonds could be compared with investment objectives .)

 

Think about the definition of investing that we proposed above, and compare it to the sale of a few stocks by an inexperienced member of the public, who does not even own what he is selling, and who has a conviction, that

To a large extent it is purely emotional, that he will be able to buy them back at a much lower price (...) In a more general sense, the expression used in the second case of "imprudent investors" could be considered a contradiction in terms worthy of laughter, something like "scrounged misers", if this inappropriate use of words were not so harmful.

 

That is, NO investor, so to speak, stops being PRUDENT

 

The distinction between investment and speculation in common stocks has always been useful, and the fact that that distinction is disappearing is a cause for concern. Frequently

We have argued that Wall Street, as an institution, would do well to reclaim that distinction and make it explicit in its dealings with the public. Otherwise, stock markets

could one day be accused of being responsible for the extraordinarily speculative losses, on the grounds that those who had suffered them were not sufficiently warned against them.

 

There is intelligent speculation, just as there is intelligent investing. However, there are many ways to get the

speculation is not intelligent . Among them, the most notable are: (1) speculating in the mistaken belief that what you are actually doing is investing;

(2) speculate seriously rather than as a mere hobby, if one lacks the adequate knowledge and skills to do so; and

(3) risk more money in speculative operations than you can afford to lose.

 

In accordance with our conservative conception, all non-professionals who operate on the margin They should recognize that they are speculating ipso facto , and it is their broker's obligation to warn them that they are doing so (…) Speculation is always fascinating, and

It can be a lot of fun as long as its results are favorable. If you want to try your luck,

·        Separate a portion, the smaller the better, of your assets, place it in a separate account and allocate it for this purpose .

·       Never add more money to this account simply because the market has moved up and the profits are plentiful. (In fact, that will be precisely the time to start thinking about the possibility of withdrawing money from the hedge fund.)

·       Never mix your speculative trading and your investment trading in the same account, or in any part of your thinking process.

 

Results the defensive investor can expect

1. What we said six years ago (1965,64)

 

We recommended that the investor divide his portfolio between blue-chip bonds and blue-chip common stocks; that the proportion allocated to obligations was never less than 25% nor greater than 75% (...) As an alternative policy, it could opt for

reduce the stock component to 25% "if he had the impression that the market had reached a dangerously high level " and, on the contrary, that he could increase it towards the maximum of 75% "if he had the impression that the decline in the share price was making them increasingly attractive .

This is something that will be repeated throughout the text:

You should SELL when stocks are “high”…

and you should BUY when its price is “attractive”….

NOT the other way around.

 

Few people were willing to seriously consider the possibility that this high rate of appreciation in the past actually meant that share prices were "too high today" and therefore that "the wonderful results obtained since 1949 were not an omen of very good results, but on the contrary of bad results, for the future »

 

2. What has happened since 1964

 

countless series of experiences that have occurred throughout the

time and have shown that the future of security prices can never be known in advance.

 

3. Expectations and politics in late 1971 and early 1972

 

After this abbreviated presentation of the main considerations, we will restate the same basic commitment policy for defensive investors: that is, that

At all times they have a substantial part of their funds in bond-type portfolios and a significant part also in stocks . It remains true that they can choose between maintaining a simple distribution in equal parts between the two components or a different proportion depending on their valuation, which varies between the minimum of 25% and the maximum of 75% of either of the two.

 

The main point to be made is that the overall results of the defensive investor will not, in all likelihood, be radically different from one representative diversified list to another.

or, to put it more precisely, that neither said investor nor his advisors will be able to predict with certainty what differences will ultimately occur in practice (...) we are skeptical about the ability of investors in general to

defensive investors to achieve better than average results, which, if we stop to think about it, would actually mean having to beat their own overall returns (Our skepticism extends to the management of large funds by experts).

 

The insistence on DIVERSIFY

We will repeat here, without apologizing for it, because it is a warning that cannot be stressed enough, that the investor cannot hope to achieve better than average results by acquiring new offerings, or overheated stocks. any type, expressions with which we refer to those that are recommended to achieve a quick profit . In fact, it is almost absolutely certain that exactly what will happen in the long run.

contrary.

The defensive investor should limit himself to stocks of major companies that have a long history of profitable operations and are in solid financial condition . (Any securities analyst worth his salary will be able to compile a list of such companies.) Aggressive investors can purchase other types of stocks, but such stocks should be trading at definitely attractive terms, as established after intelligent analysis .

 

That is, first DO NOT buy “fashionable” stocks,

only actions that have proven their solidity;

second if you want to buy risky or fashionable stocks, do it,

but when they are “attractive” (Cheap).

[Generally speculators do the opposite]

 

To conclude this section, allow us to briefly mention three complementary concepts or practices that the defensive investor can follow.

The first is purchasing shares of well-established investment funds as an alternative to creating your own stock portfolio.

You could also use one of the “common investment funds”, or “combined funds” (…)

The third concept is the method of "averaging the cost in units

"monetary units", which simply means that whoever uses this method invests the same number of monetary units in shares each month or quarter . This way you acquire more shares

when the market is at a low point than when it is at a high point, and you are more likely to get a satisfactory overall price for your entire portfolio in the long run.

Strictly speaking, this method is an application of a more general method known as “formula investing.” This second concept has already been mentioned when we suggested that the investor can modify their stock portfolios between a minimum of 25% and a maximum of 75%, in inverse relation to the evolution of the market. ( For         more advice on “established investment funds”, see Chapter 9. “Professional management” by “a recognized investment advisory firm” is explained in Chapter 10.      The         “monetary unit cost averaging” technique is explained in Chapter 5. )

They are two refined methods.

Also linked to the possibility or not of investment.

For the author of this summary,

“investment through formula ” seems more interesting

 

Results the aggressive investor can expect

First we will analyze several of the behaviors that speculative investors have generally followed to obtain better than average results. Among them are the following:

1.   Operate following the market . This generally involves buying shares when the market is moving up and selling them after it has reached the turning point and is moving down . The stocks chosen will, in all probability, be among those that have been "behaving" better than the market average (...)

2.    Short-term selectivity . This means buying shares of companies that report, or are expected to report, increased earnings, or companies for which some other type of favorable development is expected.

3.    Long-term selectivity . In this area, emphasis is usually placed on excellent growth results in the past, which are considered likely to be maintained in the future.

 

We have excluded the first technique, both for theoretical and realistic reasons, from the field of investment. Trading following the market is not a method “that, after thorough analysis, offers security of principal and a satisfactory return .” (Expanded in Chapter 8)

 

In 1949 we were able to present a study of the fluctuations of the stock market during the previous 75 years that confirmed a formula,

based on profits and current interest rates, to determine a level to buy the DJIA below its "core" or "intrinsic" value, and to sell above said value. Was

an application of the maxim that governed the behavior of the Rothschilds: "Buy low and sell high." Furthermore, it had the advantage of working directly against the established maxim and

pernicious stock market theory that stocks should be bought because they have moved up and sold because they have moved down. Unfortunately, after 1949, this

formula stopped working.

 

It was clear that these shares were being sold at a price well below the value the company would have as an unlisted entity . No owner or majority shareholder would think of selling their properties for such a ridiculously low amount. Surprisingly, such

anomalies were not difficult to find. In 1957, a list was published showing practically 200 issues of this type that were available on the market (...) However, with the minimum prices of 1970, a considerable number of these securities that were quoted "below the circulating capital" reappeared. and despite the strong recovery of the market, there were still quite a few of them at

end of the year to constitute a complete portfolio.

 

Commentary on chapter 1

Why do you think the brokers on the floor of the New York Stock Exchange always burst into cheers when the bell rings at the close of trading, regardless of the market's performance that day? Because whenever you trade, they make money whether you make it or not. By speculating instead of investing, you reduce the chances of increasing your own wealth, and increase the chances of increasing someone else's wealth .

 

The investor calculates what a share is worth, based on the value of their businesses . The speculator bets that a stock will rise in price because someone else will be willing to pay more for it.

she. (…) For the investor, what Graham called values

"quotation" matters much less. Graham urges you to invest only if you would feel comfortable owning a stock, even if you had no way of knowing its price.

daily . As Graham advised in an interview,          "Ask yourself: If there wasn't a market for these         stocks,       would you be    willing to make an investment in this company          in these stocks ?"        conditions?".          (Forbes, January 1, 1972, p.90).

Unsafe at high speed

The financial video game

Oscar Wilde jokingly remarked that a cynic "knows the price of everything and knows the value of nothing." According to that statement, the stock market is a complete cynic, but in the late 1990s, the market would have left Wilde himself speechless. A mere clumsily expressed opinion about the price that a stock might reach could be the cause of that stock reaching

to double its price, without anyone having bothered to examine, even above, its value.

 

From formula to failure

In any case, doing crazy trading is not the only form of speculation. During the last decade or so, a speculative formula was promoted after

another, and then, when that formula became popular, it was thrown away.

 

Take advantage of the calendar

 

(own summary) If investors loaded their portfolio with small-company stocks in the second half of December and held them through January, they could outperform the market by five to ten percent. In short, small company stocks were turning into momentary opportunities due to these factors. The January effect is a stock market phenomenon that is characterized by an abnormally high rise in prices in the first days of January, in contrast to the declines that occur in the last days of December of the previous year. This pattern, known as one of the “Calendar Anomalies,” tends to primarily affect smaller companies whose stocks are more volatile.

 

It is a warning

about the price evolution in December, January of the shares, HOWEVER,

I think today you could look at it with the INDICES---

precisely, from smaller companies.

Stick to “what works”

Apply the “The Crazy Four” method

How is it possible for a portfolio made up of only four stocks to be sufficiently diversified to offer “security of principal”?

All of this reinforces Graham's warning that speculation should be treated the same way veteran gamblers treat their visits to the casino:

— You should never deceive yourself, believing that you are investing when in reality you are speculating.

— Speculation becomes mortally dangerous the moment one begins to take it seriously.

— You should put strict limits on the amount you are willing to bet .

 

Episode 2

The investor and inflation

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Commentary on chapter 2

Something key: the inflation experienced in Latin American countries is generally much HIGHER than that experienced in the US

 

The illusion of money

 

They call it the “illusion of money.” If you get a 2% pay increase in a year when inflation is 4%, you will almost certainly feel better than if you took a 2% pay cut in a year when inflation is zero.

Half protection

Two acronyms to the rescue

(Recommends taking refuge in) REIT. Real Estate Investment Trusts are entities that own real estate.

residential and commercial nature, and are dedicated to its exploitation through rental.(…) TIPS. TIPS, or Treasury Inflation Protected Securities, are obligations of the US Administration, first issued in 1997, that automatically increase in value when the inflation rate rises.

Chapter 3

A century of stock market history: The level of stock prices in early 1972

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Commentary on chapter 3

Bullish chickweed

When Graham asked, "Can this carelessness go unpunished?" he was aware that the eternal answer to that question is no. Like an angry Greek god, the stock market destroyed all those who had come to believe that the high returns of the late 1990s were some kind of divine right .

Survival of the best fattened: which is technically known as "survival predisposition." Therefore, these indices grossly overvalue the results obtained by real-life investors who lacked the perfect divination skills to know exactly which were the seven companies to buy.

Actions.

 

The harder the fall will be

As a lasting antidote to this kind of bullish nonsense, Graham encourages the intelligent investor to ask himself some simple, skeptical questions.

·        Why do future stock returns always have to be the same as past returns?

·        When all investors accept the theory that stocks are a guaranteed way to make money in the long term , won't the market end up with excessively high prices ?

·        When that happens , how will future profitability be high?

 

By the late 1990s, inflation was fading, corporate profits seemed to be booming, and most of the world was at peace. That did not mean, nor would it ever mean, that it was interesting to buy shares at any price. Since the profits that companies can generate are finite, the price that investors should be willing to pay for the shares must also be finite.

 

The limits of optimism

Although all investors know that they are supposed to buy low and sell high, in practice they often end up doing the opposite. Graham's warning in this chapter

It's very simple: "According to the rule of contrasts", the more enthusiastic investors become about the stock market in the long term, the more likely it is that they will end up making mistakes in the short term .

 

And now that?

Stock market performance depends on three factors:

 — Real growth (the increase in company profits and dividends).

 — Inflationary growth (the general increase in prices throughout the economy).

 — Speculative growth (or decrease) (any increase or reduction in the investing public's appetite for shares).

 

Chapter 4

General Portfolio Policy: The Defensive Investor

 

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Commentary on chapter 4

There are two ways to be a smart investor:

— Continually researching, selecting and monitoring a dynamic combination of stocks, bonds or investment funds .

— Creating a permanent portfolio that runs on autopilot and requires no more effort (even if it generates very little emotion).

 

If you have time on your hands, are highly competitive, think like sports fans, and enjoy complex intellectual challenges, the active method is for you.

If you are always overwhelmed, want simplicity and don't like to think about money, the passive method is for you.

(Some people feel more comfortable combining the two methods; creating a portfolio that is mostly active and partly passive, or vice versa.)

 

Will he dare or will he choke?

Instead of buying and holding their stocks, many people end up buying at high prices, selling at low prices , and holding nothing but their own heads on their hands.

 

This is a rule Graham insists on, persists with, and never gives up on: the clumsiness of buying/high selling/low

 

Because so few investors have the fortitude to hold on to stocks in a declining market, Graham insists that everyone should have a minimum of 25% in bonds . That cushion, he says, will give him the courage to keep the rest of his money in stocks, even at a time when stocks are performing dismally.

 

NOTE:

·         Bonds on the stock market are considered a fixed income instrument, because there is an exact amount to be paid on a defined date.

·         They are financial instruments that allow those who purchase them to receive, at the end of the period agreed upon with the issuing entity, the reimbursement of the capital invested plus interest . For this reason, they are known as debt securities.

·         The main difference between bonds and obligations is the period of time for which they are subscribed. Bonds establish a short and medium-term maturity period, between 2 and 5 years, while debentures are long-term investments that can mature up to 30 years.

Once you've set these percentage goals, change them only as your life circumstances change. Don't buy more stocks because the stock market is up; Don't sell them because they have gone down. The essence of Graham's method is to replace impressions and hunches with discipline. Fortunately, by structuring your retirement savings plan it's easy to put your investment portfolio on permanent autopilot.

Let's say you are comfortable with a relatively high level of risk , for example 70% of your assets in stocks and 30% in bonds . If the stock price in the general market increases by 25% (and bonds remain level ), you will have just under 75% in stocks and only 25% in bonds. Visit your retirement savings plan's website (or call their toll-free number) and sell enough of your funds in stocks to rebalance your portfolio to your target ratio of 70- 30 .

The key is to perform these rebalancing operations according to a predictable and patient plan : without doing it so frequently that you end up going crazy, nor so infrequently that their objectives are constantly thwarted . We recommend that you do it every six months, no more and no less, on easy-to-remember dates such as New Year's and June 30.

 

The details of investing in fixed income

Cash is not bad

Options outside of public administration

Chapter 5

The Defensive Investor and Common Stocks

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Commentary on chapter 5

The best defense is a good offense

Should you buy what you know?

First let's examine one thing that the defensive investor always has to guard against: the belief that you can pick stocks without doing any prep work . In the 1980s and early 1990s, one of the slogans of

The most popular investment was “buy what you know.” Peter Lynch , who ran Fidelity Magellan from 1977 to 1990, a period in which it achieved the best track record ever obtained by a fund.

investment, was the most charismatic defender of that proposal. Lynch claimed that amateur investors had an advantage that professional investors had forgotten how to use: "The

power of ordinary knowledge.

If you discover a great new restaurant, a nice car, a

toothpaste or a pair of jeans, or if you notice that there are always cars in the parking lot of a nearby company, or that work continues late at night at a company headquarters.

early in the morning, you will have a personal perception about those stocks that the professional analyst or portfolio manager could never perceive. In Lynch's words, "over a lifetime of buying cars or cameras you acquire a sense of what is good and what is bad, what sells and what doesn't... and the most "The important thing is that you know it before Wall Street knows it."

Peter Lynch with John Rothchild , One Up on Wall Street (Penguin, 1989), p . 23. ( SUMMARY IN THIS SAME BLOG)

Lynch's rule, "You can outperform experts by using your advantage by investing in companies or sectors you already know," is not entirely unwise, and thousands of investors have benefited from putting it into practice over the years. . However, Lynch's rule can only work if you also respect its corollary: “Finding a promising company is only the first part. "Next you have to do the research." In its

benefit, it should be noted that Lynch insists that no one should ever invest in a company, no matter how fantastic its products are or how saturated its parking lot is, without studying its status.

financial and without estimating the value of their activity. Unfortunately, most stock buyers have ignored that part of his recommendation.

 

Familiarity breeds complacency. In television news reports, isn't it always the neighbor, or one of the criminal's best friends, or the criminal's father who says in a voice of disbelief, "He was a very nice person"? This is because whenever we are too close to a person or thing, we take our beliefs for granted, instead of questioning them as we do when they are related to something that is more distant to us.

 

Can he manage alone?

 

Do it yourself

 

reminding you, as if being tapped on the nose with a rolled-up newspaper, that selling quickly is a cardinal investment sin

 

Don't invest in just one stock, or even a small number of different stocks . If you are not willing to spread your bets, you should not bet at all. Graham's indication that

recommended owning stocks of between 10 and 30 companies is still a good starting point for investors who want to select their own stocks, but these investors should also

Make sure you are not overly exposed to a single sector.

That is, minimum 10 shares (ideally 30)

from DIFFERENT economic sectors…idea:

10 stocks, 5 sectors; 30 stocks,10 sectors

 

If after setting up an investment portfolio on autopilot If you discover that you trade more than twice a year , or that you spend more than one or two hours a month, in total, dedicating yourself to your investments, something has gone horribly wrong . Don't let the ease of use and sense of immediacy of the Internet seduce you into becoming a profiteer. A defensive investor enters, and wins, the race by standing still.

Here, a key conversation reappears:

you must decide how much to put into a medium, long term investment portfolio (Graham and his commentator suggest 75%)…

and then, it's your decision,

at what pace does it move

with the rest

Get help

 

Outsource . Mutual funds are the best way for the defensive investor to take advantage of the benefits of owning stocks without the drawbacks of having to look after their own portfolio. With a relatively low price, you can get a high level of diversification and convenience by letting a professional choose and monitor the stocks on your behalf. In their brightest version, that is, in indexed portfolios, investment funds do not

They require virtually no supervision or maintenance. Index funds are a type of investment that is very unlikely to cause any type of

suffering or surprise, even if we forgot about them for 20 years. They are the defensive investor's dream come true. For more detailed information, please read chapter 9.

 

Smooth the way

 

In essence, eyes that do not see, a heart that does not feel. The most appropriate way to implement money cost averaging is to create a portfolio of index funds that hold all the stocks or bonds worth owning. In this way, you not only renounce the game of guessing the evolution that the market will follow, but also the task of trying to identify which sectors of the market, and which actions or obligations within those sectors, are going to achieve the best results. top

results.

 

That is, buy INDICES

(in some Hollywood movies they explain someone's enrichment or “financial freedom” like this, in the same way some of the free rich ( nomadas )

They say that is the way:

ACQUIRE INDICES… WITH S.

 

Let's say you can set aside $500 a month. Hiring three types of funds referenced to different indices and applying the monetary cost averaging technique, allocating

·        $300 to a fund that has the entire US stock market,

·        100 dollars to another fund that has foreign stocks and

·        100 dollars to a fund that has obligations of the United States,

You are guaranteed to own virtually every investment on the planet worth owning.

 

At the time of writing this summary, 2024;

(part of the series “After 20,000”)

the relationship would be, perhaps (…),

of 250 in US stocks, 100 in Asia, 50 in Europe and

100 obligations…

because?,

because the planet is moving towards ASIA…

(the comment to Graham was written HALF A CENTURY ago)

 

 

According to Ibbotson Associates , the important financial research firm, if it had invested 12,000 dollars (46.8 million COP) in an index referenced to the Standard & Poor's 500 at the beginning of 1929, ten years later it would only have 7,223 dollars left .

 

That is, everything, at once...

 

However, if he had started with a mere 100 dollars and had simply invested another 100 dollars (776.7 THOUSAND COP) every month, by August 1939 his money would have reached 15,571 dollars.

 

That is, gradually...

 

Although it was not possible for retail investors to buy the entire S&P 500 index until 1976, the example nevertheless demonstrates the effectiveness of buying more shares when the

share price evolves downward.

 

Best of all, after you've created a portfolio on permanent autopilot with index funds at its core, you'll be able to answer every question about the market with the strongest answer a defensive investor can offer: "I don't know." , I do not care".

 

If someone asks if bonds are going to achieve better results than stocks , simply answer "I don't know, and I don't care"; After all, you are automatically purchasing both .

 

Will stocks of healthcare companies do better than stocks of high-tech companies ? "I do not know, and I do not care". You are the permanent owner of both.

 

What will be the next Microsoft? "I don't know, I don't care," as long as it's big enough to belong in the portfolio, your index fund will have it , and you'll reap the rewards.

 

Will foreign stocks do better than U.S. stocks? "I do not know, and I do not care"; If they have it, you will take advantage of the benefit, if they don't, you will be able to buy more at lower prices

 

Chapter 6

Portfolio policy for the entrepreneurial investor: Negative method

-NOT READ, the comments were read. A summary: https://www.mindomo.com/es/mindmap/el-inversor-inteligente-eaeb332a2ed1451ba3d3828beca794ca

Commentary on chapter 6

The scum of the earth?

However, it would have taken just a 30-second glance at WorldCom's bond prospectus to see that these bonds had nothing to offer except their yield, and everything to lose. In two of the previous five years, WorldCom's pre-tax results (the profits made by the company before paying the amount owed to the Tax Agency) were insufficient to cover its fixed charges (the cost of paying interest to holders obligations) for the impressive figure of 4.1 billion dollars. WorldCom could only cover payments related to those obligations by borrowing more from banks. Furthermore, with this new monstrous dose of obligations, WorldCom was increasing its interest costs by another 900

million dollars a year.

The Vodka and Burrito Investment Portfolio

Die like operators die

As we have seen in chapter 1, intraday operations, in which shares are held in the portfolio for periods of a few hours, are one of the best weapons that have been invented to

commit financial suicide . Maybe some of your trades will make money, most of them will lose money, but your broker will make money on all of them .

Your own eagerness to buy or sell a stock will end up reducing the results you get. A person who is desperate to buy a stock may end up bidding 10 cents more than the stock's most recent price before sellers are willing to part with it. That additional cost, called “market impact,” never shows up in your brokerage account, but it is real. If you're too eager to buy 1,000 shares of a company and drive its price up by just 5 cents, you've just cost yourself $50, which may be invisible, but it's very real . On the other hand, when panicked investors are frantic to sell a stock and dump it at a price lower than its most recent price, the market shock hits again.

 

The lesson is clear: don't do anything, stay still. It's about time everyone recognized that the term "long-term investor" is redundant . The long-term investor is the only type of investor that exists . A person who cannot hold on to stocks for more than a few months at a time is doomed to end up as a loser, not a winner.

 

 

Not for getting up early...

Finance professors Jay Ritter and William Schwert have shown that if you had allocated a total of only $1,000 to all initial public offerings in January 1960, at their initial offering price, and sold them at the end of that month , and there would have been

reinvested again in each batch of IPOs in each successive month, his investor portfolio would have been worth more than 533,000 quintillion

 

Unfortunately, for every IPO like Microsoft's that turns out to be a big

success, there are thousands of failures. Psychologists Daniel Kahnerman and Amos Tversky have shown that when humans estimate the probabilities or frequency of an event, the assessment is not based on how often the event actually occurred, but on how notable the examples that occurred in the past are. last.

We all want to buy “the next Microsoft,” precisely because we know we didn't buy the first Microsoft. However, we all conveniently overlook the fact that most other IPOs were horrible investments. He could only have made those $533,000 quintillion if he had never missed a single one of those rare triumphs of the IPO market, and that is practically impossible .

Finally, most of the high returns from initial public offerings are obtained by members of an exclusive private club, the large investment banks and investment companies that obtain the shares at the initial (or "subscription") price, before before the shares begin trading publicly. The biggest increases usually occur with such a small number of shares that not even large investors can get their hands on a share; There are simply not enough shares outstanding.

If, like virtually every other investor, you can only get access to IPOs after their shares have skyrocketed by the initial exclusive price , your results will be dire. From 1980 to 2001, if you had bought the shares of a typical initial public offering at their first closing public trading price and held them for three years , you would have underperformed the market by more than 23 years.

percentage points per year

More important is the fact that acquiring the shares in an initial public offering is a bad idea because it flagrantly violates one of the most important rules laid out by Graham: regardless of the number of people who want to buy a share, you should only buy shares if that Purchasing offers an economical way to become a desirable business owner . At its peak price on its first day of trading, investors were valuing VA Linux shares at a total of $12.7 billion. What was the value of the company that had issued the shares? VA Linux was less than five years old and had achieved total cumulative sales of $44 million from its software and services, although it had lost $25 million in the process. Last quarter's fiscal results indicated that VA Linux had achieved sales of $15 million, although it had incurred losses of $10 million to achieve those sales. This company, therefore, lost practically 70 cents of every dollar that entered its coffers. VA Linux's accumulated deficit (the amount by which total expenses had been greater than its revenues) was $30 million.

However, it seems like a good idea to buy...and sell immediately...is that right?

Chapter 7

Portfolio policy for the entrepreneurial investor: Positive aspects

-READ PARTLY? the comments were read. A summary: https://www.mindomo.com/es/mindmap/el-inversor-inteligente-eaeb332a2ed1451ba3d3828beca794ca

Growth stock method

The reader would have the right to ask himself if it is not true that the truly large fortunes obtained with actions are precisely those accumulated by those who made a commitment

substantial in the early years of a company in whose future they had great confidence, and by those who held on to their original shares with unwavering faith as their investments multiplied by 100 or more . The answer is yes".

However, large fortunes with investments in a single company are almost always achieved by people who maintain a close relationship with that specific company, through an employment relationship, a family connection, etc., which justifies the fact that they place a much of their resources in a single medium and remain committed in all circumstances, despite the numerous temptations to sell at apparently high prices over the years. An investor who does not have that close personal contact will constantly have to face the question of whether he has too much of his funds in that one medium * ( The current equivalent of investors "who have a close relationship with the company in question" are the so-called people who exercise control, senior managers or directors who help run the company and who own large blocks of shares. Managers such as Bill Gates of Microsoft or Warren Buffett of Berkshire Hathaway have direct control over the destiny of a company , and outside investors want to see that these top managers maintain their large stake as a vote of confidence . However, lower-level managers and ordinary workers cannot influence the company's stock price with their individual decisions; therefore therefore, They should not place more than a small percentage of their assets in the shares of the company of which they are employees . As for outside investors, it doesn't matter how well they think they know the company; the same objection applies ). Each decline, however temporary it turns out to be in the long run, will accentuate your problem; On the other hand, pressures, both internal and external, may force you to accept what at first glance appears to be a substantial profit, although in the long run it ends up being less than the prosperity that could have awaited you if you had kept your investment.

until the end.

 Although I looked for the original in English: https://download.library.lol/main/233000/e8647599ac32f0c5eb4333351811c886/Benjamin%20Graham%2C%20Jason%20Zweig%2C%20Warren%20E.%20Buffett%20-%20The%20Intelligent% 20Investor-Harper%20Business%20%281973%29.pd f 

I have a big question,

because the text sounds contradictory, it says YES…

but then try to refute it

(in general Graham believes that investors should be shareholders (trivia: https://uk.news.yahoo.com/legal-team-voided-musks-tesla-230039948.html )

Three recommended fields for “entrepreneurial investment”

To obtain better than average investment results over a long period of time, a selection or operation policy is necessary that is appropriate on two fronts:

(1)must pass the objective or rational test of its underlying reasonableness and

(2) It must be different from the policy followed by the majority of investors or speculators .

Our experience and our studies lead us to recommend three investment methods that meet these criteria.

 

1.   The relatively unpopular large company

In 34 tests conducted by Drexel & Company (now Drexel Firestone) * with one-year holding periods from 1937 to 1969,

Cheaper stocks performed clearly worse than the DJIA in only three cases ;

The results were more or less the same in six cases ;

and cheap stocks 25? They obtained results clearly better than the average in 25 years .

The consistently better result of stocks with

low multiplier is shown (table 7.2) in the average results of successive five-year periods, when compared with those of the DJIA and those of the group of ten stocks with the highest multiplier.

 

This example of negative results should not vitiate conclusions based on more than 30 experiments, but the fact that it happened recently provides an element of special negative weighting . Perhaps the aggressive investor should start with the “low multiplier” idea, and add some other quantitative and qualitative requirement to that idea when organizing his portfolio.

 

2.   Acquisition of second-hand securities

A bargain stock is one that, based on facts established through analysis , appears to be worth considerably more than the price indicated by its price.

 

At the lower levels of the general market a large proportion of common stocks are bargain stocks, measured by these criteria.

(A typical example is General Motors

when it sold for less than 30 in 1941,

quote that was equivalent to 5 for the 1971 shares .

It had been earning more than $4 and paying $3.50 or more in dividends .)

 

3.   Model of occasion actions of second level companies

4.   Special situations or "rescues"

 

More general consequences of our investment rules

 

Commentary on chapter 7

 

It takes great daring and great caution to amass a great fortune; when it has been

achieved, it takes ten times more daring and caution to preserve it.

Nathan Mayer Rothschild

 

The situation is nothing

In an ideal world, the intelligent investor would only hold stocks when they are cheap and sell them when they are overpriced, at which point he would fill the portfolio with bonds.

and cash until stocks became cheap enough to buy again. From 1966 to the end of 2001, one study claims, $1 held permanently in stocks would have risen to $11.71. However, if it had left the market Just before the five worst days of each year, the original dollar would have risen to $987.12

 

If we had followed the recommendations of the best 10% of all market analysis bulletins, we would have obtained a 12.6% annualized return between 1991 and 1995. However, if we had not heeded these recommendations and had

By keeping our money in a market index fund , we would have gotten 16.4%.

 

Note the insistence... not on actions, but on INDICES...

 

Everything that goes up...

The faster these companies grew, the more expensive their shares became. When stocks grow faster than companies, investors always end up regretting it

A great company is not a great investment if you pay too much for its shares . The more a stock goes up, the more likely it seems that it will continue to go up . However, that instinctive belief is radically contradicted by the fundamental law of financial physics: The more

The bigger they get, the slower they grow.

 

But, there if a HIGHLY RISKY but interesting key appears : and it is pure SPECULATION ,

you can, for example, invest 100 dollars (or less)

on a stock that is going up, earn 20,

and then

repeat the action (with 100),

the moment the stock falls…

in an eternal flea cycle:

I enter, I leave, I evaluate…. I enter …. I retire…

It depends a lot - as they insist - on the discipline

 

Stocks of growing companies are interesting to buy when their prices are reasonable , but when their price-to-earnings ratio rises well above 25 or 30 , things get ugly :

 

This decline caused J&J's share price to go from a PER of 24 to one of 20, compared to the profits of the previous 12 months. At this lower level, Johnson & Johnson could once again become a growth stock with room to grow , becoming an example of what Graham

called " the relatively unpopular large company "

 

Should you put all your eggs in one basket?

By keeping all their eggs in the single basket that had allowed them to enter the list , in sectors that had experienced spectacular growth in the past , such as oil and gas, or appliances

computer science, or basic manufacturing, the rest of the members disappeared from the list. When the bad times came, none of these people, despite the great advantages that immense assets can bring, were properly prepared. They were only able to stand still and close their eyes to the horrific crunch caused by the changing economy.

constant while crushing their only basket and all their eggs that were deposited in it

 

The basket of opportunities

find the day's lists of stocks that have hit their lowest point in the last year; a simple and fast way to locate

net working capital requirements . ( Online , try it at http://quote.morningstar.com/highlow.html?msection=HighLow).[updated by blogger: https://www.wsj.com/market-data/stocks/newfiftytwoweekhighsandlows - -- https://www.nasdaq.com/market-activity/nasdaq-52-week-hi-low ---- https://www.barchart.com/stocks/highs-lows -- https:// finance.yahoo.com/u/yahoo-finance/watchlists/fiftytwo-wk-low/ --- https://www.investing.com/equities/52-week-high ?

 

To check whether a stock is selling for less than its net working capital value (what Graham fans call "net net"), download or order the most recent annual or quarterly report from the company's or company's website. EDGAR database in

www.sec.gov. Subtract from the company's current assets its total liabilities, including preferred stock and long-term debt .

 

As of October 31, 2002, for example, Comverse Technology had $2.4 billion in current assets and $1 billion in total liabilities, bringing net working capital to $1.4 billion. With less than 190 million shares and a trading price of less than $8 per share, Comverse had a total market capitalization of less than $1.4 billion. Comverse's stock, which was valued below the value of cash and

stock of Comverse, caused the company's permanent business to be sold for practically nothing. As Graham well knew, it is possible to lose money on stocks like those of

Comverse , and that's why you should only buy these types of stocks if you can identify a couple dozen at a time and patiently hold them in your portfolio. However, on the very rare occasions when Don Mercado generates such a high number of genuine bargains, you are virtually guaranteed to make money.

Blogger's note: that example: does NOT work ,

In fact, in 10 years that company DISAPPEARED.

 Comverse technology - Wikipedia, the free encyclopedia

 

What is your foreign policy?