How to be an intelligent investor according to Benjamin Graham

f you listen to one of many Warren Buffet’s speeches on the success, you will learn invaluable lessons. In one of the many Buffet’s appearances, he says that success is more than pure intellect or energy. Accordingly, Buffet believes that integrity is the mother of all qualities, and any man can develop it. Indeed, he let us play a little game: “let’s think for a moment that you have the right to buy 10% of one of your classmates for the rest of his/her life, and you had an hour to think about it. What are you going to do? Are you going to have your friends take an IQ test?” Warren Buffet doubts it. “Are you going to pick the one with the best grades?” He doubts it too. According to Warren Buffet, you would pick the one who is humble, who gives credits, who is altruist… In few words the one who shows good leadership qualities.

Then, Warren Buffet makes us assume the opposite scenario: “Imagine you had to go short 10% on someone in your class” (it means you would make money if your friend fails in life). “Who would you pick? Would you pick the person with the lowest IQ? Or the person with the lowest grades?” Again, Warren Buffet doubts it. He believes you would choose the person who turns you off the most; the dishonest person, the one who cuts corners, who does not give credits to others. In few words, Warren Buffet message is: “It doesn’t matter how smart you are, what is your IQ score, if you lack leadership skills you won’t be successful in life and therefore, in business.”

Buffet was Benjamin Graham’s protégée. Of the many people who played a significant role in Buffet’s life, Graham is the one who most contributed to his business acumen. Indeed, when Buffet was still young and inexperienced, he found in Graham’s books “Intelligent Investor” and “Security Analysis” the foundation of his business success. Chapters 8 and 20 of the book, struck Buffet so much that he followed those principles throughout his life like a religious man would follow the Bible. Graham and Buffet proposed an alternative view on investing. One that goes against common wisdom for which “you must be super smart to be successful in investing.” Instead, Graham and Buffet say that you must have another form of intelligence to master investing: the Emotional Intelligence.

Who is Benjamin Graham?

Benjamin Graham was born on 1894, in London, although his family soon moved to New York when Graham was a year old. His father died when Graham was still a kid, and he lived with his mother almost in poverty. Nonetheless, Graham made it through Columbia, and after a brilliant academic path, he soon joined Wall Street. Graham was so successful that after few years he was already running his investment firm.

How did he succeed?

Benjamin Graham became the father of value investing. Value investing starts from the assumption that Mr. Market (That’s how Graham called the Stock Exchange) is wrong most of the time. It means that most of the stocks listed there are either undervalued or overvalued. What sounds a marginal assertion today was revolutionary at the time. Indeed, at the beginning of the 20th century, the stock exchange was considered at same way of the “Oracle of Delphi,” infallible. And lucky investors were considered “Gods” rather than man. In such scenario, the great depression sounded more like a divine punishment of the gods. Rather than a simple financial crisis that could be handled. Graham ability stood in his analytical framework. This framework consists primarily of dissecting companies’ balance sheets to find those who are undervalued.

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