In Benjamin Graham's book, he defines two types of investors based on the aggressiveness of their portfolios:
<ol>
<li>The active / enterprising investor; and</li>
<li>The passive / defensive investor</li>
</ol>
The former requires continuous researching of stocks, bonds, and mutual funds and this type of investor exerts much time and energy, while the latter has a fixed portfolio that runs autonomously regardless of the situation.
If you plan to become an investor, pick the type that best suits your personality to ensure the longevity of the approach.

Types of Investors

<ol>
<li>Intelligent investing requires a thorough analysis of the company's (that you'll be investing in) fundamentals</li>
<li>Includes the competency to protect himself from or against severe losses</li>
<li>An intelligent investor must not anticipate extraordinary results therefore keeping expectations low but still aim for an adequate performance</li>
</ol>

What Consists Intelligent Investing

Benjamin Graham stated that the more enthusiastic investors and speculators become in the long run (of investing), the more certain they are to be proved wrong in the short run because the future of the market is unpredictable. 
To be an intelligent investor means to be humble, composed, and that they should be abe to expect the unexpected.

The Rule of Opposite

This is a principle of investing wherein an investor purchases securities only when their market price is significantly below their intrinsic value.
The formula to determine the intrinsic value of something is:
Margin of Safety = Market Cap / Deep Value Bargain Investing
Remember, the market swings wildly from day to day and presents large changes in valuation over periods of euphoria and pessimism.

Margin of Safety

Before investing your capital:
<ul>
<li>make sure that their current ratio is below 1.5</li>
<li>debt must be no more than 110% of working capital</li>
<li>current earnings per share must be greater than their earnings per share (EPS) from 5 years ago</li>
<li>they must pay a current dividend regardless of the amount</li>
<li>their price to book must be less than 1.2; and</li>
<li>the PE (price earnings) ration must be less than 10</li>
</ul>

For the Enterprising Investor

“People who invest make money for themselves; people who speculate make money for their brokers.

<ol>
<li>Patient</li>
<li>Disciplined</li>
<li>Keen to learning new things</li>
<li>Able to keep emotions in check</li>
<li>Able to think for themselves (critical thinking skills)</li>
</ol>

The Characteristics of The Intelligent Investor

The stock investor is neither right or wrong because others agreed or disagreed with him; he is right because his facts and analysis are right.

Once you have your capital, invest 50% of it into bonds or an index fund (depending on market conditions) while the other 50% to be invested on individual stocks. 
However, when investing on individual stocks make sure of the ff:
<ul>
<li>avoid small cap stocks unless they're diversified</li>
<li>current assets should at least double current liabilities</li>
<li>stock earnings show stability over the previous 10 years</li>
<li>look for companies that have a history of paying dividends</li>
<li>PE (price earnings) ratio must be no more than 15 over the previous 3 years; and</li>
<li>if their book ratio is less than 22.5, it's reasonably priced</li>
</ul>

For the Defensive Investor

The investor believes that the market price is judged based on the established standards of value, while the speculator bases all their judgment on market price.
To distinguish whether you are the intelligent investor or a speculator, ask yourself whether or not you would invest in a stock without seeing its chart.
Additionally, the intelligent investor is not looking for quick gains but rather something long-term and sustainable regardless of the market's volatility.

The Intelligent Investor vs The Speculator

We've collected the most popular hacks to help you reach your financial goals

books

Books

business

Business

moneyandinvestments

Money & Investments

personaldevelopment

Personal Development

How to Succeed at Investing

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. Over the years, market developments have proven the wisdom of Graham’s strategies. While preserving the integrity of Graham’s original text, this revised edition includes updated commentary by noted financial journalist Jason Zweig, whose perspective incorporates the realities of today’s market, draws parallels between Graham’s examples and today’s financial headlines, and gives readers a more thorough understanding of how to apply Graham’s principles. Vital and indispensable, The Intelligent Investor is the most important book you will ever read on how to reach your financial goals.

The classic bestseller by Benjamin Graham, perhaps the greatest investment advisor of the 20th century, The Intelligent Investor has taught and inspired hundreds of thousands of people worldwide. Since its original publication in 1949, Benjamin Graham's book has remained the most respected guide to investing, due to his timeless philosophy of "value investing," which helps protect investors against the areas of possible substantial error and teaches them to develop long-term strategies with which they will be comfortable down the road.Over the years, market developments have borne out the wisdom of Benjamin Graham's basic policies. Here he takes account of both the defensive and the enterprising investor, outlining the principles of stock selection for each, and stressing the advantages of a simple portfolio policy. Among the book's special features are the use of numerous comparisons of pairs of common stocks to bring out their elements of strength and weakness and the construction of investment portfolios designed to meet specific requirements of quality and price attractiveness.The Intelligent Investor may be the most important book you will ever read on making your investments a success."The Intelligent Investor is the best book ever written for the stockholder," says author and investment counselor John Train. Benjamin Graham's classic work offers sound and safe principles for investing-principles that have worked for more than forty years since the first edition was published. With an introduction and appendix by Warren Buffett, one of Graham's most famous students in investing strategy, this book takes account of both the defensive and the enterprising investor."By far the best book on investing ever written." -- Warren E. Buffett"There have been other good books written about money since 1841, but only a few hold up. The best known and most likely to make you money is The Intelligent Investor." -- Andrew Tobias"Graham ranks as this century's (and perhaps history's) most important thinker on applied portfolio investment." -- John Train, author of The Money Masters

Benjamin Graham was a British-born American economist, professor and investor. He is widely known as the "father of value investing", and wrote two of the founding texts in neoclassical investing: Security Analysis with David Dodd, and The Intelligent Investor.

Margin of Safety

Similar ideas to Margin of Safety

What is Margin of Safety?