Benjamin Graham - The Intelligent Investor Part 6

For previous versions of the review, do head here for part 1, here for part 2, here for part 3, here for part 4, and here for part 5. This will be the last and final instalment of the review. I have learnt so much nuggets of wisdom from this book that I find it a pity to part with this book. I have used the theories in this book to successfully make returns beating the market, coming close to a 20% return for the year including dividends and distributions from my holdings. However, I believe that creating a cash cow from a suitable business venture is also key to becoming financially free, however that is a story for another day. With no further ado, let us head into part 6 review of The Intelligent Investor by Benjamin Graham.

Activist investing might be able to improve operational efficiency
In this case, Graham wants us to know that as shareholders of the company, we are essentially part owners of the company. Therefore, the management actually works for us but yet increasingly, shareholders are becoming like tame sheep who listens constantly to the management, agreeing with them on all their decisions during Annual General Meetings (AGM). To be honest, I was disappointed by Warren Buffett no vote status on Coca Cola compensation plans for their executives. I personally echo Warren Buffett's views that it was a bit too excessive but felt that with his holdings and influence, could have prevented the bill from passing.

Margin of safety is an important concept in investing
The difference between the price paid and the value of a financial asset is the margin of safety. The greater the margin of safety, the more likely it is for you to gain profits. Forecasting future earnings have been relatively popular in modern times but estimates have to be understated rather than overstated in order for maximum margin of safety in helping one make a sound investment.

Diversification goes hand in hand with the concept of margin of safety
Margin of safety gives a better probability for profits rather than loss but a total loss in investments is still possible. However, with the right diversification, the aggregate profits from investing is likely to write off the losses from investing.

Investing is like doing business, and one should adhere to these principles:

• Know what you are doing, know your business
• Run your own business, and trust someone who can be trusted
• Calculate your potential for profits prudently and shrewdly 
• Have the courage to follow through with your calculations and conclusions

Successful investing is about managing risk, not avoiding it
Risk is present in whichever investments we made. Successful investment comes from acknowledging the presence of risk, but preparing well enough to manage it, such that there is a margin of safety. Be aware of your investments, so that you will be able to better control your fear when the market swings widely.

With that, I have come to the end of the review of The Intelligent Investor by Benjamin Graham. I hope you guys have benefited from this review as well! Do keep a lookout for my next review!