Updated: Jun 13, 2020
The greatest investment advisor of the twentieth century, Benjamin Graham taught and inspired people worldwide. Graham's philosophy of “value investing”—which shields investors from substantial error and teaches them to develop long-term strategies—has made The Intelligent Investor the stock market bible ever since its original publication in 1949.
I've felt like this is the book I've been looking for to satisfy my investment curiosity.
Just looking up at my bookshelf I have:
Neither of these will make it on my recommended reading list, however, this is where my journey went wrong - I didn't stop to think about my "Investment Horizon", my Investment Goal (if I use my Enterprise Architecture paradigm).
The Intelligent Investor looks at every combination (diversification) of one's portfolio and how to manage it "Intelligently". Readers will pick up the core elements of how to select equities based on the intrinsic value of a company, not what the markets are telling you - a great analogy Graham uses (I paraphrase), "If you had someone coming to your front door each morning shouting an offer price for your home, you wouldn't just accept it, you understand the intrinsic value in your home." Simple.
I didn't just read the book, I thought I would apply what I had learned... what's the point of leaning something new and not applying it. I completely bought into the guidance -including the "If you've done your homework, don't keep watching the markets each day, you're heading for your investment horizon and your decision-making (based on rigorous analysis) is sound."
"Sound decision making" isn't the same as "Guaranteed profits", one just increases the probability of the other.
If readers are interested, I'm more than willing to do a Blog on what I learned about trading, the platforms I use for Fixed Income assets, Bonds, and ISAs. I also did considerable research on CFD platforms (Contract for Difference), including holding costs, broker fees, leverage accounts, etc. At this point, I am - and have been for a few years - smitten with CMC Markets; robust, reasonably priced (not the cheapest, but worth the price compared to the 'issues' other platforms suffer).
For information, I've stuck rigidly to the guidance provided in the book - the effort required can be considerable; digesting financial reports and substantial amounts of data, reviewing historical EPS (Earning per Share) performance, Debt Ratio as a proportion of Market Capitalisation... the list goes on. However, I found that if you get organised, have a plan, the more you conduct the analysis, the quicker and easier it gets - you find ways of using CMC's short-cut links to Morningstar Reports, which also highlight some of the key indicators highlighted by Graham - here's an example report:
Some useful websites for Investment Research:
The following spreadsheet shows how I've assimilated the guidance from Graham, captured it in Excel and added my own 'twists' - for example, Graham covers Dollar Cost Averaging (frequent, incremental, investments which, over a long-term investment horizon, leverage market modulation to produce an overall profitable outcome); I've added some algorithms to take a look at the positions I hold - data fed real-time to Excel, alongside extracted statement data from CMC - and knowing that my value investment approach means that I care less about volatility and more about the 'end game', I weight my Dollar Cost Averaging (DCA) [monthly] investments to those positions that performed the worse - amplifying the DCA effect.
The amounts I've been investing have been small - be careful not to be "too" small as your trading costs could exceed the actual "Take Profit" you earn. As an example, I've calculated that - based on my investing objectives - that it's not worthwhile for me to place a trade lower than £50 (and I'm expecting a 100% return over 7 years).
As of writing, I've managed to acquire 13 positions (Graham recommends around 15-20 equity positions, diversified across sectors). In each of those, I aim to put £100/month. I started 1 April 2020 with £2,500, as at writing, I'm sat with £1,127.96 profit - however, I'm under no illusion that this is great investing on my part (I simply followed "The Rules", well, did break them a few times being seduced by candle-sticks and prices popping up on the screen... but Graham also guides on what good investment behaviour and emotion should look like.
On top of a few impulsive trades, I have lost a couple of positions due to the Markets being so volatile (COVID) they Close-out my positions - my Stop Loss (inspired from an online Investment company that operates based on similar principles to Graham, whose name I forget) is set to 8% of the invested capital. However, I dug into the data and found that had I set-up my Stop Loss to 12%, 75% of the trades that I had lost, would have remained and gone on to be profitable.
The theory - based on Graham - is that if I've done the requisite planning, my 3-5 year return should be aiming for an annual return of 20%, maybe reach 15%, would be happy with 12%, and if I end up with 8%... maybe consider buying a property to let instead of all the effort involved in pouring over Annual Reports and Financial Statements.
My best performing trade, XPO Logistics.
What makes this amusing is that I had only decided to invest in this company (after doing the Ben Graham research) due to its sector - I just started equity trading and I wanted to know what was going to have a high probability of increasing in value - maybe all those people that are needed to shift food, medical supplies, goods, etc, in the time of this pandemic... logistics companies (I also have a trade with J B Hunt transport, NASDAQ!
Haulage is a sector where I have an ambitious Financial Services "FinTech" proposition. This is currently at the stage of seeking investment, but you can learn more by joining the group of contributors and collaborators here.
This book has truly changed my opinion on how to value invest, and while it doesn't suggest completely stopping speculative trading, it does outline how you can mitigate that gambling approach through structured planning and analysis... a bit like going out for a meal (if you remember those days) and deciding you're not going to spend more than £5 of your £50 meal budget on alcohol.
Since reading this book, I would strongly recommend not investing one more penny until you have done so.