My financial life changed with that purchase…

I learned most of the thoughts in this investment discussion from Ben Graham’s book The Intelligent Investor, which I bought in 1949. My financial life changed with that purchase… For me, the key points were laid out in what later editions labeled Chapters 8 and 20. (The original 1949 edition numbered its chapters differently.) These points guide my investing decisions today… Of all the investments I ever made, buying Ben’s book was the best (except for my purchase of two marriage licenses).

S&P 500 index fund

My money, I should add, is where my mouth is : what I advise here is essentially identical to certain instructions I’ve laid out in my will. My advice to the trustee could not have been more simple : put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund (I suggest Vanguard’s). I believe the trust’s long-term results from this policy will be superior to those attained by most investors – whether pension funds, institutions, or individuals – who employ high-fee managers.

Contrarian approach

None of this means, however, that a business or stock is an intelligent purchase simply because it is unpopular ; a contrarian approach is just as foolish as a follow-the-crowd strategy. What’s required is thinking rather than polling. Unfortunately, Bertrand Russell’s observation about life in general applies with unusual force in the financial world : “Most men would rather die than think. Many do.”


But a pin lies in wait for every bubble. And when the two eventually meet, a new wave of investors learns some very old lessons : first, many in Wall Street – a community in which quality control is not prized – will sell investors anything they will buy. Second, speculation is most dangerous when it looks easiest.

Intrinsic value

Intrinsic value can be defined simply : It is the discounted value of the cash that can be taken out of a business during its remaining life. The calculation of intrinsic value, though, is not so simple. As our definition suggests, intrinsic value is an estimate rather than a precise figure, and it is additionally an estimate that must be changed if interest rates move or forecasts of future cash flows are revised.

Better than 90% of people

If you invested in a very low-cost index fund – where you don’t put the money in at one time, but average in over 10 years – you’ll do better than 90% of people who start investing at the same time.

Annual reports

I read annual reports of the company I’m looking at, and I read the annual reports of the competitors – that is the main source of material.

Successful investing

(Successful investing) requires qualities of temperament way more than it requires qualities of intellect. I mean, if you’ve got more than 125 IQ, you can throw away the rest of the points or give them to your other members of the family or do something because you don’t need it in investing.