Benjamin Graham wrote The Intelligent Investor in 1949, and revised it every five years or so until his death in 1976. It’s widely considered to be the best book ever written on the subject of investing, and is beloved of Warren Buffet. That was good enough for me, so I bought a copy and took it with me on my Spring vacation. It was a revelation!
I’m an engineer. I was first turned on to engineering when my physics teachers introduced me to Sir Isaac Newton and his laws of mechanics. These laws made intuitive sense and gave me the power, through disciplined observation, measurement and calculation, to make successful predictions about how objects will perform in the physical universe. When we use Newton’s laws to build bridges or navigate space, it tends to work out. The Intelligent Investor now gives me that same feeling of intuitive sense and empowerment, but this time the laws apply to the financial universe. The most compelling idea for me is Graham’s definition of investment versus speculation. I had been speculating for a dozen years without knowing it!
But it’s not a simple thing.
“Long ago, Sir Isaac Newton gave us three laws of motion, which were the work of genius. But Sir Isaac’s talents didn’t extend to investing: He lost a bundle in the South Sea Bubble, explaining later, “I can calculate the movement of the stars, but not the madness of men.” If he had not been traumatized by this loss, Sir Isaac might well have gone on to discover the Fourth Law of Motion: For investors as a whole, returns decrease as motion increases.” – Warren Buffet
We must take care to avoid being caught up in the “madness of men” – speculation – and stick to the fundamentals that Sir Isaac Newton momentarily forgot.