The Intelligent Investor Takeaways

Hey Happy Friday Everyone! Sorry for missing my regular post date on Sunday's! To Make up for it I'm doing a post tonight!

About 2 weeks ago I finished the Intelligent Investor by Benjamin Graham! Overall the book was very good and offered some outstanding advice to anyone who invests, especially if you are just starting.

For this post, I'll mention some of the key takeaways that I got and how I plan to apply it to my own investing.

First and foremost Graham talks about the 2 different kinds of investors; passive and aggressive. The difference between the two is that the aggressive investor is usually selecting their stocks and actively doing research on companies. The aggressive investor will dedicate a significant amount of time in selecting their stocks. This is very important. If you are not ready to dedicate a significant amount of time to researching companies then you should automatically be a defensive investor.

The defensive investor invests in index funds only. This is because index funds follow the performance of larger market indexes. For example, a an index like the VFV which is a vanguard index fund tracks the S&P 500. So anyone who invests in this particular index should expect to see a return close to the S&P 500. The beauty of Index funds is that they require essentially zero work. Graham praises them for their simplicity and effectiveness.

Now for some of the key takeaways from the book!


1) If you are not willing to put in a considerable amount of research in selecting stocks ONLY invest in index funds. Anything else is considered to be speculation and thus very risky and irresponsible. I have done speculating the riskiest being that I own shares in a company called Drone Delivery Canada. So far it had done nothing but decrease in value although hopefully, it will go up right? From now on I will only be purchasing shares of index funds.

2) It is extremely hard to beat the market! Overall the past 15 years only about 10 to 5 per cent of mutual funds outperformed the S&P 500. There are over 4000 mutual funds in Canada giving you about 200 to 400 to choose from if you can find them. And depending on when you start investing, I have at least a 25 year time horizon the chances of picking a winner go down even further! Having a mutual fund myself I will have transferred over my funds into either index funds or a passively managed fund (passively managed funds costs significantly less than actively managed funds).


3) No IPO's. An IPO (initial public offering) is when a company decides to go public and sells there stock for the first time. Graham mentions due to survivorship bias of the Microsoft and the Amazons that if you pick 1 good IPO you'll be set. The truth is the vast majority of IPO's fail and looses almost all of there value. By choosing to hold index funds if an IPO becomes good enough it will be added to the biggest indexes anyway which means you'll own it! For instance, come December 1st Tesla will be added to S&P 500. So by holding and an index fund that tracks the S&P 500 you will now be a Tesla shareholder!!!

4) Sell stocks as often as you wash your ankles in the shower! Every time you make a trade either buying or selling a stock you are charged a fee. There are a few trading platforms that allow you to trade for free although they usually experience more technical and down days. Furthermore, the more one trades more likely one is to lose out on gains in the long run. Grahams recommendation, buy and hold. Having a long investment timeline myself I do not plan to sell any of my current stocks for many, many years.

5) Buy Low Sell High! Haha, I bet you've heard this one before. Sounds simple but extremely hard for most people. Graham states that an investor's worst enemy is himself. Particularly his own emotions. When major financial crisis hit and individuals lose 20, 30, 40 and even over 50% of their portfolios value it can be a hard thing to stay put and not take your cash and run. Graham recommends that when these events happen you should think of it as Black Friday or Prime Day. As stocks decline in value they usually become safer. For example, when McDonald's hit its low in the Pandemic it dropped to about 137/share its market cap then was just over 100 billion. The market cap is what the open market values a particular company. Just alone McDonalds has over 30 billion dollars in just real estate assets. This isn't accounting for any of its profit it makes from leasing out this real estate, food sales or its brand value. What a bargain! Being priced very close to its tangible book value your chances of losing money are much less then if you bought it now at $218!

Overall I hope you all enjoyed these tips and try some of them out yourself! I look forward to putting up my next post on Sunday! Feel free to reach out 613-290-6012 or 16zwg@queensu.ca if you ever want to connect!

Best

Zach

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