The Intelligent Investor, by Benjamin Graham, Jason Zweig, and Warren Buffett - A Hyperink Quicklet

value is only determined by what someone will pay for the asset. To paraphrase Graham, there is intelligent speculating as well as intelligent investing—just be sure you understand which you are good at.

Investors vs. Speculators: Graham drew a clear line between those who invest and those who speculate in securities. According to Myers:

“An investor looks at a stock as part of a business and the stockholder as the owner of the business, while the speculator views himself as playing with expensive pieces of paper with no intrinsic value. For the speculator,

Defensive vs. Enterprising Investors: Graham devoted several chapters of his book that addressed the distinction between approaches to investment. An enterprising, or active investor makes “a serious commitment in time and energy to become a good investor who equates the quality and amount of hands-on research with the expected return,” according to Daniel Myers in an article posted on Forbes magazine’s website. A defensive, or passive investor devotes less time and work into researching investments and should expect a lower return. “In modern terms, the defensive investor would be an investor in index funds of both stocks and bonds,” Myers wrote. “In essence, they own the entire market, benefiting from the areas that perform the best without trying to predict those areas ahead of time.”

Value Investing: To put it concisely, this investment philosophy pioneered by Benjamin Graham and David Dodd at Columbia University in the 1920s involves buying a security that has a market price below the entity’s fundamental financial value. For example, while the external (often emotionally driven) market forces push a company’s stock price lower, a thorough look at a company’s economic fundamentals indicate that it’s share price is likely to rise over the long term.

Security Analysis: Graham distinguishes this term from “financial analysis.” According to Graham, security analysis is confined “to the examination and evaluation of stocks and bonds, whereas financial analysis would comprise that work, plus the determination of investment policy (portfolio selection), plus a substantial amount of general economic analysis.”

Margin of Safety: The Graham Investor defines this term as “…the difference between a stock’s price and its intrinsic value. In theory, the further a stock’s price is below its intrinsic value, the greater the margin of safety against future uncertainty and the greater the stock’s resiliency to market downturns.”

than two declines of five percent or more in year-end earnings over the most recent ten years.”

10. Stability of growth in earnings—defined as no more

9. Earnings growth over the most recent ten years of seven percent compounded—a doubling of earnings in a ten-year period.

8. Total debt equal or less than twice the net quick liquidation value as defined in No. 5.