The Intelligent Investor: Introduction - Building An Investment Policy That Feels Comfortable For You

I first bought The Intelligent Investor on January 6^th, 2020, just before the pandemic. It was one of the books that showed up on Amazon when I searched “Investing” (It still is). It was a thick book with a lot of text. I thought, “It’s going to be a very long read.” And it was. But it was an incredible one.

Fast forward in 2023, I decided to re-read the book. With the inception of my blog, I chose to do a deep dive into each chapter, distilling the core ideas that Graham wanted to convey to the readers. The following blog posts will delve deep, but not into every detail. I intend to provide comparatively short and succinct messages for each chapter, so you need not strain to understand it. I’ll do the work for you.

So here it is.

*Disclaimer* This is solely my interpretation of the book. It may not align with the interpretations of others who have read the book. I will frequently quote directly from the book when appropriate. I might even use some words directly in my interpretation without quoting, in cases where I believe the language is already as straightforward as it can get. This is not investment advice.

Introduction: What This Book Expects to Accomplish

The Intelligent Investor has one primary goal: to assist the reader in developing an investment policy that they are comfortable with.

You might be wondering, “So what kind of policy? What does it mean to be comfortable?” These are excellent questions. When we consider investing, what comes to mind? For me, investing begins with selecting a company that I genuinely understand and then putting my hard-earned money in its stock, with the hope that it will appreciate in the future. This might sound straightforward and one-dimensional, but it turns out to be multifaceted.

A lot of people get caught up in the current “hype”. In 2020, I recall the immense hype around electric vehicles. Tesla was the popular choice among the crowd. There was so much hype that the stock price increased tenfold in under a year. Numerous YouTubers suddenly emerged, praising TSLA publicly. Some people went so far as to liquidate everything to buy Tesla shares and broadcasted their daily profit and loss (P/L) in their videos. They analyzed the stock charts and, when things looked favorable, they put more money in TSLA. Some even bought Tesla Model Xs for their spouses to celebrate. Things went exceedingly well for them, until they didn’t. Some had to sell their homes, and others had to shut down their YouTube channels because they were so embarrassed.

Why did that happen? Graham provides two lessons. One of the two is what I want to share here, because it is so damn important.

Obvious prospects for physical growth in a business do not translate into obvious profits for investors.

I’d like to term these “prospects” as "hype". According to Google’s definition (using Oxford Languages), hype means “extravagant or intensive publicity or promotion”. I totally concur with that. When something is hyped, like a limited edition of Nike shoes collaborated with a celebrity, its price skyrockets. People, being inherently irrational, buy into it. Is the price paid justifiable? Most certainly not. So, how can one justify the price? According to Graham, one must ask, “How much?”

This leads to a sub-goal (still significant) of this book: to help the reader develop a tendency to quantify. Imagine working diligently for thirty years and finally amassing $1 million. You might be contemplating, “I kinda want to invest this money and retire.” So, you begin researching how to invest your precious $1M. Would you be comfortable putting your money in a stock that is so hyped that you believe it will double your money within the next year? You might think, “Duh, yeah.” However, the caveat here is that you are unaware of the risk; in essence, you don’t know if it’s overvalued to the point where you could lose all your money – forever.

The predicament lies in the actual value of the stock, which remains unknown to you. You haven’t done the research. If you don’t know the true value that you are willing to pay, would you feel comfortable paying it? Most likely not. The ability to quantify what you are buying can instill a sense of comfort. Nobody likes being antsy.

Graham said,

The investor’s chief problem – and even his worst enemy – is likely to be himself.

Therefore, learning chapter by chapter will help us foster the appropriate mental and emotional attitudes toward making investment decisions, thereby developing a sound investment policy that is comfortable for us.

Graham added,

We hope to aid our readers to establish the proper mental and emotional attitudes toward their investment decisions. We have seen much more money made and kept by “ordinary people” who were temperamentally well suited for the investment process than by those who lacked this quality, even though they had an extensive knowledge of finance, accounting, and stock market alone.

With that, I'll end the Introduction chapter here. Chapter 1 - Investment versus Speculation: Results to Be Expected by the Intelligent Investor will be coming up soon.