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Be an Intelligent Investor

the intelligent investor chapters

Intelligent Investor: Chapter 20

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hello friends, in today’s article we see chapter 20 of the intelligent investor book. In this chapter, we get the Margin of safety, its advantage, and how it is important for us. Chapter 20 of the intelligent investor book, is a famous chapter and also important for investment.

Intelligent Investor: Chapter 20

The margin of Safety:-Intelligent Investor: Chapter 20

Let’s understand the margin of safety with examples, let’s consider the one bridge that has a 200-tonne capacity, on this bridge you try to pass the 199-tonne capacity truck. Most of the time your bridge is broken. So to avoid the accident, you have to take the margin of safety. If you pass the truck which has a weight of 150-tonne, then you can pass the bridge without an accident.

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So when you make the investment in the stock market. you have to consider the margin of safety. Investment with a margin of safety is good, and the best is the margin of safety with your life. (Intelligent Investor: Chapter 20)

So the author gives some points you should know.

Things to know:

  • Relationship between the margin of safety and diversification: When you use the margin of safety or diversification, there is only one motive is to minimize the risk of investment. so there is some relationship between margin of safety and diversification.
  • The secret to how to get rich is “Don’t lose”:  In investment, the most important part is that don’t lose principal money, If you lose money, then you can not recover the loss of money. so recover this loss you have got a 100% gain or sometimes is 1000% gain. So the best way to get is don’t lose money. (Intelligent Investor: Chapter 20)
  • Always remember you can’t time the market: so many traders or some investor try to time the market for quick money, but most of the time lose their money. The intelligent investor doesn’t try to time the market. They always leave away from trading.
  • Don’t pay so much for a stock that you will have to regret it later: The author is telling about the overvalued stock buying.
  • Some questions to ask yourself before making a decision:  for this, you can ask yourself is that the worst condition of the company can be recovered in past, and also if your all money is lost, you will be fine with that. You can also ask what is lost of the company instead of the probability of that to succeed.

This is all about the margin of safety from chapter 20 of the intelligent investor book.

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Intelligent Investor: Chapter 15

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Hello friend, in today’s article we see chapter 15 of the intelligent investor book. In this chapter, benjamin gram discusses the enterprising investor criteria. These criteria help you to become an enterprising investor in-stock selection. Let’s see chapter 15 of the intelligent investor book.

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Intelligent Investor: Chapter 15
 

6 Criteria for the stock selection:-Intelligent Investor: Chapter 15

  1. Strong financial condition: Each and every investor those are a defensive investor or an enterprising investor both see the strong financial condition of the company. This condition helps you to boost your confidence about the investment, so check for the strong financial condition. (Intelligent Investor: Chapter 15)
  2. Earning Stability: Enterprising investors also check the earning stability and this earning increase by 5 % in the positive way. For this purpose, you can consider the previous year’s earnings.
  3. Dividend Record: Great investor of all time is warren buffet say’s, ” Your investment principle get from the dividend, and this dividend you can invest in other company. all your investment money comes in the dividend form, so check for the dividend record. “
  4. Earnings Growth: with a dividend record enterprising investors also check for the earning per share i.e. earning growth. This EPS is increased by 4% in these years as compared to the previous year.
  5. Moderate P/E ratio: You can also for the price earning ratio. this ratio is not more than 15. If your price earning ratio is more than 15 so don’t buy that company stocks. This type of company takes money from the investor for the trading event. this type of event can be changed every time. (Intelligent Investor: Chapter 15)
  6. Moderate P/B ratio: enterprising investors also check for the price-book ratio. this ratio is not more than 1.5. and also make calculations in between the p/e ratio and p/b ratio it’s multiple is not more than 22.5.

we see the 6 criteria for stock selection for the enterprising investor, with this author give us some other things that every enterprising investor consider.

how to become a value investor

Other things to consider: 

  • Net-Net result: enterprising investors see the net-net result that means current asset – current liability. making this calculation you get the exact condition of the company.
  • Special situations: enterprising investors check for the company’s special situations like acquire the company, novel discovery, etc. (Intelligent Investor: Chapter 15)
  • Selecting individual stocks is not necessary:  If you are very busy in your work so you can hire a broker for your Investment.
  • Use virtual money to picks stocks: If you are a beginner in the stock market. Benjamin gram recommends you to practice for one year with the virtual money to picks stocks. After this, you can use your real money for the investment. (Intelligent Investor: Chapter 15)
  • Index funds:  author give the most advice is the buy the index funds with minimum charges and invest in each and every month.

after this author gives us the two traits of an enterprising investor, those are as follows:

  • Disciplined and consistent: Don’t change your approach even if it is unfashionable regarding stock selection.
  • Pay little attention to what the market is doing: an enterprising investor has to focus on what they need to do and how to do it. (Intelligent Investor: Chapter 15)

this is all about the enterprising investor traits and criteria

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Intelligent Investor: Chapter 11

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Hello friends, in today’s article we discuss the Security analysis for Lay(common) Investors i.e chapter 11 of the intelligent investor. In chapter 11 of the intelligent investor, Benjamin gram gives us the Four elements to consider for buying stocks. That element as follows

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Intelligent Investor: Chapter 11
 

4 Element to make decisions:-Intelligent Investor: Chapter 11

  1. Company’s general long term prospects
  2. Quality of its Management
  3. Financial strength and Capital strength
  4. Dividend Record

let’s see one by one

Companys general long term prospects:- Intelligent investor: chapter 11

to know about the company you have to ask two sentence

  1. How did the company grow?
  2. Where to come profit?

and also check the company’s acquisition and also OPM(other people’s money). If a company depends on other people’s money and they acquire other companies. This type of company does not grow well in the future, and If it depends on other people’s money, they are taking the debt on the company. Also, check the customer range of the company. if the customer is less or minimum then don’t buy the company. (Intelligent Investor: Chapter 11)

If the customer is more and maximum, then that is a good sign. Also check the good competitive advantage like coca-cola, Gillet, etc. Check the net income of the company and revenue with constant earning increases over the past 10 years. 10% is good constant earning before tax and after 7% is good.

If a company invests in Research and Development, for the future product that is a good sign for the company. Most important if the cash flow operating is negative consistently and cash flow of financing activity consistently positive then leave the company. Because this type of company taking the debt on the company. (Intelligent Investor: Chapter 11)

Quality of its management:

Management is the core of any company, so you have checked the management.

Management should be honest and complete the promises of investors and customers. you can see the company record of management and his promises, and also they are accepting the mistake and take the responsibility to handle it. And also check the stock issues, If the stock goes higher and goes down quickly is a bad sign, management has to maintain the P/E ratio. That ratio is not more than 16. (Intelligent Investor: Chapter 11)

Financial strength and capital strength:

each and every company requires finance, so you have to check finance also. for this you can do this.

You can check the Owner earning, this may be 6-7% increases consistently. also, check the Debt to equity ratio, this ratio is 1 not more than that. And you have to include in-dept called as preferred stocks. and also check the Interest coverage ratio, this may be 4 is a good sign. (Intelligent Investor: Chapter 11)

Dividend Record:

If you want to make an investment, in the long term by using compound interest. Then you have to check the dividend record. If the company has the computation record then you check the company outperformance from the computation. If this is not happening then the company wastes the investor cash, this type of company has to give the dividend. (Intelligent Investor: Chapter 11)

You have to check if the company doing the publicity of the stock split, then this type of company fools the investor and wastes the money of the investor. if the company buys back the share is a good sign of the company when they are cheap. if a company buys shares at is a higher price then they waste the money. Check for the dilute diluting if this happens stop this.

If you check these 4 elements of security analysis. you get good company,

This is all about the Security analysis for common( lay ) investors.

To visit the value investing website

Read more One Up On Wall Street Book Summary

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Next Chapter 12

Intelligent Investor: Chapter 8

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Hello friends, in today’s article we see chapter 8 of the intelligent investor. Investor and market fluctuations, this chapter explains how investors behave and also market. Warren Buffet(world’s greatest investor of all time says)     ” In intelligent investor book, teach me the two lessons, in chapters 8 and 20.” So chapter 8 of intelligent investors is the most important chapter of all time in Value investing.

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The Intelligent Investor: Chapter 8

Investor and Market fluctuations:-Intelligent Investor: Chapter 8

In this chapter, the author says there are two ways to make a profit in the market.

  1. Pricing:
  2. Timing:

When you make money, you buy a cheap price of a stock with a great company. It’s is the only way you can make money with our value investing philosophy.

When you make money, you time the market. This is job is horrible because you make a little profit of 100 times but you lose a single profit more than the value of 200 times. So most of the time when you try to time the market, you go to the speculation side, and the most interesting thing is that you think, you are doing the investment instead of speculation. This also called fool yourself. (Intelligent Investor: Chapter 8)

the author gives us some pointers to remember about the market, they are as follows

When the market goes up:-Intelligent investor: chapter 8

When the market is going up, you are very happy and in that flow of happiness you lose your control over yourself, so the author gives us three important points to ask yourself about the stock, they are as follows

  • Should you sell now? If you ask this question to you get your answer to that.
  • should you curse yourself for not buying more, when the price was low?
  • Should you buy more now?

This type of question asks you yourself you get the right answer this answer depends on your behavior and your philosophy. In my opinion when you try to sell this stock ask yourself it’s important now to sell for your financial circumstances, and also company financial circumstances, management.

After this Benjamin gram gives us the famous concept called the Mr. market, let’s see in detail.

Mr. Market:-Intelligent investor: chapter 8

The author gives us the market is living things, and they have human behavior. Considering this concept author gives us some pointers to handle the Mr. market, they are as follows.

  • Bipolar Disorder: Mr. market has a disease called bipolar disorder, in this disease Mr. market happy sometimes and sad sometimes. This disorder is very much harmful to the investor. So this happens with the market at that time you can ignore the market for your protection.
  • Mood Swings: Mr. market has two types of mood swings, one is good mood swings and the other is bad mood swings, and they want you to behave like that. (Intelligent Investor: Chapter 8)
  • Ignore Mr. market: Ignoring the Mr. market, you have to be very much discipline, and When you want to deal with the market. do when their mood is good, ignore when they have a bad mood.
  • Make him your servant: You have to make Mr. Market is your servant, not you are the servant of Mr. market, This you can do only by ignoring Mr. market.

So dealing with Mr. market you have to control the following things

  • Brokerage costs
  • ownerships cost
  • expectations
  • Risk
  • Tax bills
  • Own behavior

Value investing means control your own behavior, If you can’t control the above point you have to the Index fund Investing a daily month on month. this also gives you the best return in the long run. (Intelligent Investor: Chapter 8)

So the author gives us the same point on controlling their own behavior, they are as follows

Advice:

  • Our brains are designed to identify patterns: So many people doing trading by analyzing the charts of trade and try to identify the pattern by using the applied mathematics.
  • Don’t check the value of your portfolio frequently: for this, you can consider the portfolio as your house.
  • For this purpose you can follow three things: 1) Dollar-cost Averaging 2)Rebalancing 3) signing the investment contract. An investment contract is given in this book, you can see and understand the deep of that contract.
  • Tax benefits: For this purpose, you can do the Index fun Investing, is this the best option for the tax benefit. (Intelligent Investor: Chapter 8)

Following this advice you can understand how the market fluctuates and what to do with investors, and also you have to understand the Mr. market.

This is all about chapter 8 of the intelligent investor.

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another financial crisis lesson from 2008

Next Chapter 9

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Enterprising investor need qualities to success

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Hello friends, today  article we see what is the enterprising investor and there quality that help to get success, this qualities form the intelligent investor book, In the article, we discuss the enterprising investing, their quality needs to get success from chapter 6 and 7 of The Intelligent Investor book. let’s see step by step.

Previous Chapter: Click hereEnterprising investor need qualities to success in Stock market

Enterprise Investor need qualities to success:

To become enterprise Investor, you have to face to  two challenge they are as follows

  • Enterprising Investing is physically, intellectually challenging
  • It requires lots of time and lots of energy.

the author gives some knowledge required to become an enterprise investor. an enterprise investor is not doing trading all the days. So for that purpose author give some point regarding the day trading to become an enterprise investor. (Enterprising investor need qualities to success)

Day Trading:-(Enterprising investor need qualities to success)

  1. Day trading as financial suicide: When you are doing trading, we have to sell the share on that day. It becomes some time risk and the maximum time you lose more money, for this reason, the author says about this on day trading.
  2. The broker always makes money: In day trading broker is always makes money, they make money when you buy. And also when you sell the share of the company.
  3. Difficult to Brake even: Day trading is very hard to give up from those things when you doing that. In this process you try to convince yourself to you can do better. (Enterprising investor need qualities to success)
  4. Some bets you win, but most you lose: In day trading some time you win by your luck, and the maximum time you lose the tonne of money in day trading.
  5. Patient investors get to keep almost everything.
  6. Say no to IPOs is probably overpriced: In IPO’s people decide the price of share with his optimistic point of view, they think someone else sits in the market to give me more money on share. So the reality is that market is the Voting machine in the short term and weighing machine in the long term, so say no to IPO. (Enterprising investor need qualities to success)

The author gives us some pointers to be considered as an enterprise investor, they are as follows:

Some knowledge of Enterprise investor: (Enterprising investor need qualities to success)

  • Pay attention to value, not price: Market is the voting machine in the short term, so pay attention to the value, not on price, price can be fluctuating or manipulate by some trader.
  • Be wary of stock with good prospects: Buy the good stocks of a company with good prospects.
  • P/E < = 25:  Price earning ratio is less than the 25 not only one year, you can take it for five to seven years of average earning. (Enterprising investor need qualities to success)
  • Look where others are not looking.
  • To obtain better than average results, remember: 1) Approach should be different from others 2)Company should pass the test of soundness

After this author gives us some recommendations to looks for the opportunities, they are as follows.

Where to look for opportunities(Three Recommendations):

  1. Relatively unpopular large companies
  2. Purchase of bargain issues: In this, you get the bargain issues by doing Current asset – total Liabilities = intrinsic value, so you can get the good opportunities here. (Enterprising investor need qualities to success)
  3. Special situation: when the bear market time you get the maximum opportunities that have good prospects. say no to the preferred stocks.

After this explanation author gives some advice that relates the ideal word for Intelligent investors. they are as follows.

Some Advice:

  • Can’t time the market: most people do that but it not run the intelligent investor.
  • A great company is not a great investment if you pay too much for it: so you need maximum return then buy the small company with good prospects.
  • The sale and market cap of small company double easily.
  • Invest in big companies when something goes wrong.
  • Don’t put all eggs in one basket.
  • Great fortunes are made by concentration but not stable for the long term, so put your egg with different companies also. (Enterprising investor need qualities to success)

So if you follow this advice you will become an enterprise investor, lastly, the author gives us some recommendations they are as follows:

  • Research stocks that have hit a 52-week low
  • Invest in foreign stock also.

 

Read more: One up on wall street book summary

Read more: Common stocks and Uncommon Profits book summary

This is all about the enterprise investor of chapters 6 and 7 of the intelligent investor book.

 

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Next chapter 8 of The Intelligent Investor book

Defensive Investor Qualities

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Hello friends, in today’s article, we see the defensive investor qualities from the intelligent investor book, In this article, the author gives us two types of intelligent investors. They are defensive investors and enterprising investors. Defensive investor qualities that help you to avoid stupidity and save money from losing money in the market.

Defensive investor qualities
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Defensive investor Qualities:-

The defensive investor has some quality, they are as follows:

  • Emotionally Challenging: If you want to be a passive investor you have to be emotionally stable, so a defensive investor is more emotional challenges. (Defensive Investor Qualities)
  • Detachment from the hullabaloo of the market: They have to courage to ignore the market.

Some knowledge for defensive investor qualities:

  • The risk lies within ourselves: Investor is the enemy of himself, so risk lies within ourselves. So do financially safe and make minimum trading.
  • Asset allocation has nothing to do with age: Making money in the stock market does not need any age. If you want to make an investment in the stock market you need money.
  • Fundamental circumstances: This whole depends upon the fundamental circumstances of our financial life.
  • How much money put in stock: The author suggests that in stock you put your all money of 25% in the stock market. remaining use for your lifestyle. never put 100% of the money in stock, Those only put 100% money who face the last market crash. (Defensive Investor Qualities)
  • Change allocation when your circumstances change.

When to put 100% in Stocks:

author give some criteria for putting 100% money in stock, they are as follows:

  1. Survived a previous bear market.
  2. Did not sell during a previous bear market.
  3. Bought more stocks in the previous bear market.
  4. Set aside cash for at least one year.

author strictly says’s ” Don’t fool yourself into believing that it’s easy if you haven’t lived through a bear market.”

Four rules for a defensive investor:

the author gives us some important rule for the defensive investor, they are as follows:

  1. Diversification: defensive investors have to do the diversification of its stock minimum of 10 to 30 stock.
  2. Large, prominent, conservatively, financially comfortable company: choose this type of company for the defensive investor.
  3. The long record of continuous dividend for 10 years: Those companies have to be the record of 10-year dividend yield. (Defensive Investor Qualities)
  4. Limit on price: Benjamin gram  Recommended 25 X average earnings over past 7 years, maximum 20 X last year earnings.

after this rule, the author gives us some advice for the defensive investor.

 Some advice for a defensive investor:

  •  Buy the company stock at a reasonable price
  • after that then relax on investment
  • Turkish proverb is that “After you burn your mouth on hot milk, you blow on your Yoghurt.

Peter Lynch, the greatest fund manager: peter lynch give the simple philosophy of investing for the defensive or common investor, that is common knowledge of the product that we use daily. after that, you can do its analysis of the stock. (Defensive Investor Qualities)

Benjamin gram gives us more advice for the defensive investor, they are as follows:

And some more advice:

  1. Don’t invest in only one stock, buy a minimum of 10 stocks.
  2. Trade less
  3. Defensive investors win the race by sitting quietly.
  4. Realizing that you can’t predict the future.
  5. Dollar-cost averaging: This concept we see in the other article.

If you want to become a defensive investor you have to follow this rule and also advice. if you follow this you will be a rich man after long term compounding effect. (Defensive Investor Qualities)

Those people don’t have knowledge of finance and balance sheet or accounting, those also become defensive investor by Taking by minimum charges of INDEX FUND. So this is all about the defensive investor.

Read more: 15th points of an outstanding company

 

Seth Klarman 30 big points on investing

The Intelligent Investor book: Introduction

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hello friends, I am Laxman, we are seeing the Financial book name as The  Intelligent Investor is one the famous book. Let’s start Intelligent investor: introduction. In This book, Intelligent Investors in the introduction gives the characteristics of an Intelligent Investor.

The Intelligent Investor book: Introduction

Characteristics of Intelligent Investor:-The Intelligent Investor book: Introduction

  • Patient:
  • Disciplined
  • Emotions Under control
  • Don’t care what other people think

the above-mentioned character has to be an Intelligent investor, Most of the people not become good investors cause lack of the above quality.

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More Characteristics of Intelligent Investor :-The Intelligent Investor book: Introduction

  • Matter of character: if you have a brain is not important. your mindset is important for the company.
  • Worst enemy: The worst enemy of Investor is himself.
  • Ordinary people perform well: In the stock market most of the time, common people perform well. As compare to finance peoples. (The Intelligent Investor book: Introduction)

Some advice of Intelligent Investor from the author:

  • Dreadful losses: In the stock market, people forget to ask the question about the stock price. They got the stock at any price that sees on the market. The author says try to ask how much of the price of the stock.
  • Buy stock like Groceries: In buying stock investors have to ask, the stock price. And buy the stock at a cheap price doing bargaining.

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The author develops some core principles of Intelligent investors.

Core principle:

  • Stock is not a ticker symbol: Stocks are the business pieces, they have the ownership interest and you are buying the business.
  • The market is like Pendulum: Market goes in up and down, the intelligent investor has to be patient and buy from the pessimism and sell to the optimistic investor. Be realistic and ignore the market swing.
  • Future Value is a function of the Price you pay today:
  • Risk of being wrong: In the stock market, You can not eliminate the risk of being wrong. And I choose whatever stock is going too high. this is not possible in the stock market. The stock market is not run on luck.
  • Discipline and Courage to ignore the Market: you have to develop Discipline against other people and your stocks and Courage to Think rationally. (The Intelligent Investor book: Introduction)

The Father of Value Investing is Benjamin Graham. The author gives, the above core principle of Intelligent Investor. In my opinion, These principles are logical. we have to ignore the market mood swing. If you develop this you will be the rich people. If you follow this book, you will get the specific principle, and follow them to avoid the stupidity in the market, that help to make maximum money by compounding principle.

 

Next chapter  1 of The Intelligent Investor book