Follow This And Become Rich
Have you ever thought of investing money in the stock market? But due to lack of knowledge. You never took any risk. But if you are asked That even without the knowledge of investment. You can invest your money. Along with this, you can also earn a lot of money. So to know the whole strategy of investment, you must read this book.
The Intelligent Investor Book has all the biggest and best investors in the world. All of them must have read it. Warren Buffett has even said that whatever success he has. Want to give credit for all that success to this book. In the world of investing, it is also called “Bible of Investing”. That is, it is also a kind of great book related to investing.
The Intelligent Investor This book has been written by Benjamin Graham. It was first published in 1949. Graham was an American economist and professional investor. Graham is considered to be the first person to do Value Investing.
Warren Buffett who is a very famous investor. Graham gives all the credit for explaining his investment. He is described as the second most influential person in his life, after his father. This will show you that even with very little effort and ability, great results can be achieved.
For a successful investment, you do not need any fancy degree, high IQ or luck. All you need is a basic knowledge of investing, an investment strategy, and how to control your emotions. If you do this thing. So you can easily earn very good profit from the stock market. This book is a bit boring to read. But there is Timeless Investing Wisdom on every single page of it.
Definition of Investment.
Most people always understand. buy anything. Then keep it for 2 years, 5 years or 10 years. So that is investing. While this investing does not happen at all. Graham suggested. It is very important to have three things in investing. If it’s not three things. So you are not investing, but gambling. These three things are as follows.
Thorough Analysis – You are investing in anything. So there must be some reason behind it. You should have a deeper analysis. Without doing that analysis, you are doing anything. So it is not investing.
Safety Of Principal – The money you are investing. That money should be safe. Such a thing should happen in that investing process. As far as the price, it fluctuates every day. But look at the year or 6 months. So your loss should not be there. That means the money you are investing. It should be safe.
Adequate Return – You should also get a successful return on the amount invested. Difficult Return, that is according to the thumbnail rule. Which you can get from fix assets. It should be 5% more than that. Like if you are getting return of 7% over FD. So if you are investing in equity. So there should be a return of 12% on it.
If these three things are included in your investment. So this can only be called right investing. If it’s not all three things. So it is called Speculation or Gambling. in which you are hitting. That I took the shares of this company. Maybe this share goes on.
Concept of Mr. Market.
Benjamin Graham says The market that presents you the daily share prices. That today take this thing for ₹ 100. Sometimes he speaks. Take in 110. So take in sometime 50. He has shown this with the terminology of Mr Market. He says that Mr. Market everyday in front of you, the share of a company, at a particular price. puts it in front of you.
He says Mr Market is right most of the time. That is, 60% to 70% of the price of a company is correct. But sometimes he gets into emotional problem. Because of this, he sometimes codes very cheap prices. Or sometimes does a very expensive price code. This is where you have to take the right decision.
If you took the right decision. Then you will get great results from it. Where did you make your mistake? So he will get bad results. Graham’s suggestion is when Mr. Market is very pessimistic. Then you should buy. When Mr. Market is too Optimistic. So you shouldn’t buy. Then you sell. That is, when there is a lot of fall in the market. Then you should buy. Same when the market is very bullish. Then you should sell.
Margin of Safety.
Margin of Safety changed the lives of investors. This concept gave investing a professional form. All of us can make some mistake in our analysis. May be, our analysis is correct. But the economic environment should change. Due to which we can suffer loss. There can be many reasons. Because of which, what you are expecting. He’s not right.
That’s why it is important that you carry safety beforehand. Like assume. are you an engineer. You have been given the task of building a bridge. Which has a capacity of 10000 pounds. So will you build a bridge with a capacity of 10000 pounds? If you built a bridge of exactly 10000 pounds. Then if a 11000 pound truck came out on it. Then the bridge will break. Then there will be problem for you.
So we should go with Margin of Safety. Therefore we should build a bridge of capacity of 12000 pounds. So that you get safety. You should get the same safety while investing. She’ll get it then. When you buy shares of any company below its fair price. If its Fair Price becomes ₹ 100. So you should buy it for 70, 80 or 60.
When you are buying it at a lower price. That is, buying 100 things for 70. So that could be a mistake in the analysis, on your part. It will be discounted here. A little business of the company which can go bad. He will give you safety. Or the overall business environment gets spoiled. So here you will get safety. Therefore, always keep in mind the Margin of Safety.
Types of Investors.
Benjamin Graham has given some types of investors. which are like this.
Defensive Investor – These are such investors. Those who are afraid of loss. Those who do not want to give time. Those who do not want to do research. Along with this, those who do not want to take much risk. Such investors are called Defensive Investors. These investors are of autopilot type in nature. He wants to make such a portfolio. in which he should keep such shares. In which there is no need to think much. There is no need to regulate track. Wants to invest in such companies. These investors are more emotional. This fear is more afraid of things like greed. They get only average return.
Enterprising Investor – This is the investor. Those who want to take risk. who want to work hard. Who can give time for research. Such investors have a lot of confidence in themselves. He thinks he is doing good research. He is confident in himself. says Graham. If we talk about long term. So such investors make more returns. The same investors do not like the type of portfolio like the defensive investors. These investors prefer decision making portfolio. These investors are not emotional. Rather intellectual. They rely on knowledge and intelligence. There is patience in them. These investors get more returns than the average.
Hybrid Investor – There can be another investor between Enterprising and Defensive investors. Which is called Hybrid Investors. These are those people. Along with being Defensive, there are also Enterprising ones. These are actually the people of that category. Those who do not want to spend time in research. Or they do not have the knowledge to do research.
Don’t want to spend even money to get advice from the right person. Listening to such people on TV or on social media. Make your investment. Such people always get below average return. Most of the time he remains at a loss. Graham makes suggestions. That you have never become a Hybrid Investor. Either you do proper research. If you can’t or can’t, then follow the strategy of defensive investors.
5 Strategies to Maximize Returns.
First Strategy – For Defensive Investor.
Defensive investors need minimum effort here. Neither here, any research has to be done. Don’t have to think too much. Don’t have to spend too much time. Here you invest only in Index Fund. What is meant by Index Fund? That you can take Nifty based or Bank based fund. Here you will also get the return, close to the average. Or rather, as the index will run. Similarly you will get returns. This is a strategy with minimum effort. You don’t have to work hard here. All you have to do is invest in index funds.
Second Strategy.
In this strategy, you have to put in some effort. This is also applicable for defensive investors only. In this, Graham says that you invest in such a company. Whose minimum revenues is $ 500 million. If there is less revenue than this. So don’t invest. That company should have current assets twice the current liabilities.
The long-term borrowings of that company should be less than its net current assets. That company should be continuously profitable for the last 10 years. Lest she be at a loss for the middle one and a half years. That company is doing Dividend Pay continuously for the last 10 years. This is how you should see this company.
Along with this, that company should be like this. Which increases its minimum EPS, on the basis of 10 years, by one-third. That is, within 10 years, it gives a growth of 33-35%. In such companies also, you invest.
So do not do more than 15 times of earning. Or it is operating below 1.5 times its book value. Then invest. Use this strategy when you build a portfolio. So you should keep minimum 10 and maximum 30 stocks.
Third Strategy.
He has created this strategy for enterprising investors. Here the risk is a bit high. With this, more research work is also done. Here, you invest in those companies. Those whose current assets exceed current liabilities by at least 1.5 times. The current debt of these companies should not exceed 1.1 times the current assets. That is, more than 110%, he should not have a loan. against its current assets.
Another thing to see. That company should not have made any loss in the last 5 years. That is, in the last 5 years, she has been profitable every year. At the same time, Dividend is also paying continuously. Along with this, there should be some growth in his earning as well. Stocks of such a company, you should not take more than 1.2 times of its fixed assets.
That is, the amount of fixed assets it has. Multiply that by 1.2. So the more you will get, its market cap. That is, above that market cap, you do not have to take it. If you are following this strategy. So at least 20 stocks should be included in your portfolio.
Fourth Strategy.
This strategy is also for enterprising investors. It is a strategy with high risk and high rewards. Here Graham says that you should take shares of such companies. Which are running below their Net Current Assets Value (NCAV). That is, as much as the current assets of the company. Below that, it should have a market cap.
In such a company, you can invest. The thing to keep in mind is that such a company should not have gone into loss in the last 2 years. At least last 2 years, it should be profitable. Because it is a risky strategy. That’s why you should include at least 30 stocks in your portfolio. So that your risk is less. Your portfolio should also be more diversified.
Fifth Strategy – For Situational Investing.
This is a situational investing strategy. Here, you do not have to do regular research. Just keep an eye on some situations. Such a situation as if a small company is being bought by a big company. Such a deal is generally done at a premium price. So in such a situation, the shares of the small company often increase.
Then you can take shares of such small companies. Any such company, which is stuck in any legal trouble. In a legal problem that is temporary. which can be solved. You can also take stocks of such a company.
A company that is doing snip off i.e. value unlocking. By listing the subsidiary company. Even in such a situation, you can invest. Graham says that you should reduce Situational Investing. Your maximum stocks should be 2-4. You do not have to follow this strategy alone. That is, you take only situational stock. You don’t have to do this.
You can take this strategy by combining it with any other strategy.
Apart from this, Graham has made an important point. that whenever you buy shares. So your thinking should be like that of a Business Owner. If you will take the investment as a business partner. So you will get very good results from it. If you don’t take it. So you will not get good results. That’s why you take investing as a business.
(The Intelligent Investor Book Summary)
So, this is the short summary of “The Intelligent Investor Book Summary”. hope you liked it. If you find this informative then also check out some more book summaries like The 5 second rule , The magic of big thinking , Finish book by john acuff, Hooked book summary, Purple Cow Book Summary, Rework (businesses important lessons) etc in my blog section.
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