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Among the vast community of investors, The Intelligent Investor by Benjamin Graham is considered one the best written accounts of the stock market and its inner workings. Value investing is considered one of the most important techniques used in investing today. The Intelligent Investor explains value investing, which is focused on generating steady, long-term profits by ignoring the current market and picking companies with high intrinsic value. Never trust Mr. Market. Graham’s most famous metaphor is used to picture the entire stock market as a single person capable of unpredictable and powerful moves. According to Benjamin Graham, “You’d be best off ignoring him, day in and day out. Sometimes the prices he’d tell you would seem suspiciously cheap, sometimes extremely high. Always stick to a strict formula and you’ll do fine.” (Niklasgoeke, 2019). To help prepare for the emotional strain that investing causes, it would be easier to stick to a strict formula while looking for possible trade opportunities.
Graham walked onto Wall Street in 1914, in an era when reliable information about corporations was sparse and the market was ruled by manipulators. He pioneered the practice of ferreting out data to find a company’s real value. Considered one of the most important terms used in investing today, value investing is the center of many important topics mentioned within The Intelligent Investor. The sole purpose of value investing is finding trades that are undervalued in comparison to its past performance. “What distinguishes value investing from other popular strategies is that value investors believe stocks have an inherent or intrinsic value — a concrete number they can derive through techniques like discounted cash flow analysis.” (Bowman, 2018. We can see the importance of practicing value investing and how it can be used to better understand the practical decision with certain trade moves.
Never Trust Mr. Market, originally expressed by Benjamin Graham, this metaphor has gone on to be used for numerous other works. In an article written about this “Mr. Market”, Zweig explains the terminology in a way to make it seem that he is directly writing to Mr. Market. “Dear Mr. Market, since you refuse to take your meds, we have to get your mood swings under control.” (Zweirf, 2008). As the definition can be explained thoroughly, the importance of how Mr. Market can be a powerful person with ultimate control cannot be taken lightly. There are many things that impact how stocks and other investments are being changed, but the powerful figure Mr. Market should never be underestimated.
Graham does his best to explain Mr. Market in The Intelligent Investor. If you were to invest $1,000 into a private business. Every day Mr. Market tells you what he thinks your interest is worth and furthermore offers either to buy you out or to sell you an additional interest on that basis. Sometimes his idea of value appears plausible and justified by business developments and prospects as you know them. Often, on the other hand, Mr. Market lets his enthusiasm, or his fears run away with him, and the value he proposes seems to you a little short of silly (Graham, Location 3083, 2013). Graham explains the severity of working within the investment community, and why an intelligent investor should never trust Mr. Market.
Mr. Graham was at times considered emotionally disconnected from everyday social norms. Zweig touches on these topics by mentioning details and quotes from Graham’s wife and son. “Benjamin Graham was always internally multitasking. Maybe people who go into investing are especially well-suited for it if they have that distance or detachment.” (Zweig, 2009). When becoming well knowledge in the stock market, there’s a specific temperament that needs to be followed. As some may find it hard to make sound investment decisions because of outside distractions in society, others may be able to distance themselves in a way to properly understand their craft and be a master. Even though Graham may be considered distant, his ability to understand his work better than anyone else in the industry is what allowed him to learn and share his knowledge to others.
“You can’t turn off your feelings, of course. But you can, and should, turn them inside out.” (Zweig, 2009). The view expressed appeals to the idea that the stock market is some kind of beast, but through proper management of feeling and emotions, you can better prepare yourself on what will be expected. In an article written by Jason Zweig, he makes a point to explain how this ideology can better improve the mind of the intelligent investor. “Mr. Graham worked diligently to resist being swept up in the mood swings of “Mr. Market” — his metaphor for the collective mind of investors, euphoric when stocks go up and miserable when they go down.” (Zweig, 2009). Using metaphors relating back to Benjamin Graham and his wonderful teachings, Zweig uses this quote to represents the actual importance of emotional stability and irrational thought prevention that could cause poor decisions making with investing practices.
Some would argue that Benjamin Graham published his best written work in 1949. The Intelligent Investor was important for the community of investors because it created a blueprint of knowledge for the stock market. During Graham’s early days, the stock market was an unknown beast that most Americans still didn’t completely understand. Graham created terminology to explain many basic fundamentals, and a few more complexed algorithms. Understanding value investing, Mr. Market, and proper emotional temperament training can help an investor create sound and stable investment decisions. As the stock market moves up and down, and recessions come and go. Intelligent investors can look to the future of a bull market and cross their fingers that we won’t see a bear market. Regardless of the future outlook, Graham has handed down proper investment training that will help any investor make intelligent decisions.
- Graham, Benjamin, et al. The Intelligent Investor: a Book of Practical Counsel. Location 3083 Kindle, Harper Collins, 2013.
- Bowman, Jeremy. “What Is Value Investing?” The Motley Fool, The Motley Fool, 19 Apr. 2018, www.fool.com/investing/2018/04/18/what-is-value-investing.aspx.
- Niklasgoeke. “The Intelligent Investor Summary.” Four Minute Books, 16 Mar. 2019, fourminutebooks.com/the-intelligent-investor-summary/.
- Zweig, Jason. “Getting a Frazzled Mr. Market to Settle Down.” The Wall Street Journal, Dow Jones & Company, 8 Nov. 2008, www.wsj.com/articles/SB122609665696209643.
- Zweig, Jason. “The Intelligent Investor: If You Think Worst Is Over, Take Benjamin Graham’s Advice.” US Major Dailies, The Wall Street Journal, 23 May 2009, ezp1r.riosalado.edu/login?url=https://search-proquest-com.ezp1r.riosalado.edu/docview/399073066?accountid.
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