Reading is one of the most important things you can do to increase your knowledge about the world and how to think about investing in anything available. My favorite book all time about investing is the Intelligent Investor by Benjamin Graham. This book explains how to think about buying stocks to obtain a margin of safety as the core idea. If you read this book, you will understand concepts which have worked for a very long period of time in terms of determining the value of an asset.
Benjamin Graham
Benjamin Graham was the definitive “founder” of value investing over seventy years ago at this point, and there are numerous articles about how he was the teacher of Warren Buffett, who is considered the greatest investor of his time by many, including me. Graham taught a class at Columbia in investing and was able to write the Intelligent Investor along with David L. Dodd. He was a person who had an extreme interest in learning his whole life which allowed him to create a framework for analyzing stocks in a way which was more formulaic and allowed for a real evaluation of the companies he was looking at.
About the Book
This book is twenty chapters which all offer a great thought process about different ideas depending on what type of investor you are mainly defensive or enterprising. The most important chapters in the book cover Margin of Safety in chapter 20, and Chapter 8, Mr. Market and Fluctuations. If you understand these two chapters well, you will be far ahead of most people who are doing investing in stocks on their own. Warren Buffett has talked about these being the two most important chapters to understand from the book.
As well, there is a very interesting appendix in the book which covers a talk by Warren Buffett where he goes into detail about how some of the students of Benjamin Graham went on to be very successful in the world of investing and gives their results for each year, they operated investment funds with annual returns over time.
I have read this book three times over the past couple of decades and return to it again over time to make sure my thinking is still being solid, and I am applying the fundamentals with the margin of safety at the forefront of my mind. I am sure I will read this book more times over the years. It just contains so much good information which still applies even all of these years later. Even more important is the how Graham leads the reader to think about concepts against examples of companies in the book in whatever version you are reading in a way which make you examine a stock in an effective way.
Why The Intelligent Investor is Applicable to Flipping
When making a decision to buy anything you expect to sell later for more money you need to think if the price you are paying for the item is a good value compared to what you can sell it for at a later time. This is the core principle I take when doing a flip. I always think of my margin of safety when I make a purchase which is taught in this book in Chapter 20 and can be applied to any type of investment. There is a saying in the book that if you talk to someone about buying an item for $.40 on the dollar, they immediately get it or normally it will be hard for them to accept that concept.
An example of this is when I bought a coffee grinder for $5.94 and ended up making a profit of $45.36 on it. My margin of safety on this item was extremely high when I purchased it. I arrived it this by knowing the brand was a highly desirable one and could see other items selling for an extremely large margin. I knew when it sold the possibility I would lose money was highly unlikely. The thing I didn’t know was when it would sell, which is the same thing you wouldn’t know when you buy an undervalued stock. The other thing I do which is in the same thought process Graham shows in the book is diversifying my buys across multiple items that allows my possibility of overall success in a year or longer at a very high rate.
Never stop learning and keep on reading!