A Sound Intellectual Framework
To Invest successfully over a lifetime does not require a
stratospheric IQ, unusual Business insights, or insider
Information. What's needed is:
Provided by the
We have to Supply
- Warren Buffet in Preface
1. INVESTMENT VS SPECULATION
An Investment operation is one that, upon
thorough analysis, promises the safety of the
principal and an adequate return.
Operations Not Meeting these requirements are
Results to be expected by the intelligent investor
depend on their approach to investing.
Importance of Conducting thorough research and
analysis before making investment decisions
rather than blindly following market trends.
Total Number of Individual traders participation in equity F&O Segment 3
FY 19 FY22
Sebi study of traders
in the Equity F&O
The Defensive investor is
someone who is primarily
concerned with preserving
capital and avoiding losses.
Stability > Growth
The Aggressive investor is someone
who is willing to take on more risk in
order to potentially earn higher
Comfortable with Volatility
DEFENSIVE VS AGGRESSIVE INVESTORS
2. INVESTOR AND INFLATION
What is Inflation?
The Money Illusion.
2 % Raise and 4 % Inflation
2 % Cut and 0 % Inflation
How to Protect against Infaltion?
Stocks that have history of increasing dividend
High Quality Bonds that protect against
Diversifying across range of asset classes.
The author emphasizes the
importance of understanding
the impact of Inflation on
investment decisions and
taking proactive steps to
protect against its effects.
Author emphasises on Long Term Perspective
What is P/E Ratio?
General P/E Ratio = 15
Individual Stocks having High P/E Ratio
Current State of the market
Warns that market will not necessarily
continue to grow
3. CENTURY OF STOCK MARKET HISTORY
Safety + Stability > High Returns
Diversification across a range of industries and
Focus on Quality - High Quality stocks and
bonds with a long history of stable earnings and
Avoiding Excessive Trading Activity which
can cause high expenses and significantly erode
4. GENERAL PORTFOLIO: THE DEFENSIVE INVESTOR
5. The Defensive Investor and Common Stocks
How should an individual's personal situation be taken into account when selecting securities
for their portfolio, in light of the general investment policy discussed in this chapter?
Ethical and social considerations
Rule 1: There should be adequate diversification
Rule 2: Each company selected should be large, prominent, and conservatively financed.
Rule 3: Each company should have a long record of continuous dividend payments.
Rule 4: The stocks should be bought at a price that is not too high.
Rules to be followed by The defensive investor
Growth Stocks and Defensive Investor
A growth stock is a stock that has increased its per-share earnings at a rate higher
than common stocks and is expected to continue to do so in the future.
IBM has been the leading growth stock, but it has experienced significant market
price declines in the past.
Growth stocks are uncertain and risky for the defensive investor, who should
instead consider large companies that are relatively reliable
6. Portfolio Policy for the Enterprising
Investor: Negative Approach
The punches you miss are the ones that wear you out.
—Boxing trainer Angelo Dundee
What does Graham suggest about diversifying your bond portfolio
with foreign bonds compared to today's options, and what are his
"don'ts" for aggressive investors when it comes to high-yield bonds?
Junkyard Dogs: High-yield
Foreign bonds with poor credit
Unfamiliar foreign currencies
Long-term bonds with low
Graham's "Don'ts" for
Exchange-traded funds (ETFs)
Bond mutual funds
Corporate bonds with high credit
Today's Options for
ETFs: Low fees and diversification, but risk
of market fluctuations
Bond mutual funds: Professional
management and diversification, but
potential for high fees
Corporate bonds with high credit ratings:
Higher yields than government bonds, but
risk of default
TIPS: Protection against inflation, but lower
yields than other options.
Risks of Each Option
Balancing risk and
adjusting portfolio as
What factors contribute to the seemingly unstoppable rise of growth
stocks such as General Electric, Home Depot, and Sun Microsystems,
and how can investors navigate the unpredictable market fluctuations that
often accompany them?
7.Portfolio Policy for the Enterprising
Investor: The Positive Side
It requires a great deal of boldness and a great deal of caution to make a great
fortune; and when you have got it, it requires ten times as much wit to keep it.
—Nathan Mayer Rothschild
The impact of timing
General Electric's decline
Home Depot's struggle to adapt
Sun Microsystems' downfall
The fall of growth
Market conditions and trends
Company management and
Innovation and technology
Financial performance and
Factors contributing to
growth stock success
Strategies for Buying Big Growth Stocks
Focusing on Industry Leaders
Investing in Companies with a Clear
Paying Attention to Valuation
Diversifying Your Portfolio
The importance of diversification
The need for continued innovation
The role of timing in investing
Balancing risk and reward in
Lessons learned from growth stock
8. Investing in Investment Funds
What are the advantages and disadvantages of investing in mutual funds, which
were introduced in 1924 by Edward G. Leffler and are known for being affordable,
convenient, diversified, and professionally managed?
Types of mutual funds
Money market funds
Pros of investing in mutual funds
Cons of investing in mutual funds
Lack of control
Fees and expenses
Risk of underperformance
What are the high-risk obstacles that investors face when investing in funds that
produce high returns, as discussed in the article, including migrating managers, asset
elephantiasis, no more fancy footwork, rising expenses, and sheepish behavior?
Definition and explanation of manager migration
Risks involved with manager migration
How to identify funds with high risk of manager migration
Strategies for mitigating risks associated with manager migration
Definition and explanation of asset
Risks involved with asset elephantiasis
How to identify funds with high risk of
Strategies for mitigating risks
associated with asset elephantiasis
No More Fancy
Definition and explanation of no more
Risks involved with no more fancy
How to identify funds with high risk of
no more fancy footwork
Strategies for mitigating risks
associated with no more fancy footwork
Rising Expenses and Sheepish Behavior
Definition and explanation of rising expenses and
Risks involved with rising expenses and sheepish
How to identify funds with high risk of rising
expenses and sheepish behavior
Strategies for mitigating risks associated with
rising expenses and sheepish behavior
A Sound Investment
9. The Investor and Market Fluctuations
Where to Invest? A Swing Trader's Strategy
Graham's Message: "Kryptonite for the Bear Market"
Be scarcely "forced
to sell" your shares
Don't focus on short
term fluctuations but
instead in the long
term underlying value
of the company.
Don't be stampeded by
unjustified market declines
Investors overly concerned with
market fluctuations, are prone to
make poor investment decisions.
Don't let other's poor judgement
affect your investment decisions.
Don't overvalue market
Market quotations are
widely defined by the supply
and demand of the stock and
do not reflect the true valued
potiential of the company.
This chapter provides a valuable reminder that market fluctuations are a normal and inevitable part of
investing, and that investors should maintain a disciplined, long-term approach in the face of volatility.
10. The Investor and his Advisors
Trust or Not?
This chapter provides detailed guidance on how to evaluate financial advisors and avoid unethical
advisors, while emphasizing the importance of maintaining an independent mindset and taking personal
responsibility for investment decisions.
11. Security Analysis for the Lay Investor
This chapter emphasizes the importance of conducting thorough security analysis. The chapter provides
practical guidance on how to approach stock selection.
Rate Dividend Record
Current Dividend Rate
30%: Increase in average daily flights
16: New international routes launched or
1,200: New employees added to the workforce
2x: Increase in average daily revenue of the airline
Source: Business Standard
Publish Date: January 27, 2023
The Takeover Success: Air India 2.0
12. Things to Consider About Per-Share Earnings
Earnings per share (EPS) is calculated by dividing a company's net income by the total
number of outstanding shares.
Non-recurring events, results
high EPS value, which
misguided the investors.
Long-term earning trends
were volatile to Aluminium
prices and production levels.
Use of Average Earnings.
A 10-year and 7-year mean
is "useful for ironing out"
fluctuations in company
profitability and business
This chapter warns against using per-share earnings as the sole metric for evaluating a company and
highlights the importance of examining other factors.
13. A Comparison of Four Listed Companies
Emerson Electric Company
Emery Air Freight
The four companies which Graham compares are
Graham’s detailed comparison of the companies is based on a collection of
financial data compiled.
Chief Elements of Performance
We’ll use the tables below to take a closer
14. Stock Selection for the Defensive Investor
A sufficiently strong financial condition
Continued Dividends for at least 20 years
No earnings deficit in the past ten years
Ten-year growth of at least one-third in per-share earnings
Price of stock no more than 1.5 times net asset value (NAV)
Price no more than 15 times average earnings of the past three year.
Graham takes us through what we should look for in stocks if we’re going to pick
stocks and are of the Defensive Investor disposition.
The Seven Quality and Quantity Criteria
15. Stock Selection for the Enterprising
Graham notes that he cannot offer one particular style for all aggressive
investors, but suggests that they consider all of the reasonable market that fits
their parameters at an original paring of results.
The better way is to look for cyclical enterprises , when the current situation
is unfavorable, the near-term prospects are poor, and the low price fully
reflects the current pessimism.
16. Convertible Issues and Warrants
Graham explains what the investor should understand about
convertible bonds and preferred stocks. He opens by defining stock-
option warrants as : long term rights to buy common shares at
Graham also cautions that convertible issues can be complex and
difficult to evaluate. He advises investors to carefully examine the
terms and conditions of a convertible issue before investing, paying
particular attention to the conversion ratio, the conversion price, and
the yield to maturity.
17. Four Extremely Instructive Case Histories
Invest in co.
Wait for a better
Inc. Not to rely on
Penn Central Co.
Emphasizes the importance of value investing and thorough analysis of statements and balance
sheets. Serves as a valuable guide for investors, providing practical examples of how to apply the
principles of value investing in practice
1 Real Estate Investment Trust
Realty Equities Corp. of New
2 Air Products and Chemicals Air Reduction Co.
3 American Home Products Co American Hospital Supply Co.
4 H&R Block, Inc. Blue Bell, Inc.
International Flavors &
International Harvester Co.
6 McGraw Edison McGraw-Hill, Inc.
7 National General Corp. National Presto Industries
8 Whiting Corp. Willcox & Gibbs
18. A Comparison of Eight Pairs of Companies
By comparing the companies on
multiple criteria, the author
provides readers with a
comprehensive analysis of the
investment opportunities presented
by each pair of companies.
Bold - Better investment
opportunity than other
19. Shareholders and Managements :
Higher growth potential
Lower growth potential
High payout ratio
Lower payout ratio
Companies with -
Dividend payout ratio, which is the
proportion of earnings paid out to
shareholders as dividends.
Graham suggests that investors should
consider the dividend policy as part of their
overall investment analysis. Advises investors
to be cautious of companies that have a high
dividend payout ratio but low earnings or
unstable financials, as this may be an
unsustainable dividend policy.
Margin of safety is a principle of investing through which investors purchase securities
only when their market price is below their intrinsic value.
20. "Margin of Safety" as the Central
Concept of Investment
Margin of Safety - Not JUST a Defensive Concept
Emphasizes the importance of the margin of safety as a key principle of successful investing, and
provides guidance on how to use this concept to identify undervalued stocks and minimize risk in
It recommends companies with strong financials, a competitive advantage,
and a reliable track record, as well as a margin of safety.
It also emphasizes the importance of discipline, patience, and emotional
control in the investment process, and that investors should stick to their
investment strategy and avoid making impulsive decisions.
The Intelligent Investor emphasizes that investment should be made with a
long-term perspective and a focus on fundamental analysis.
Overall, investing requires a rational and disciplined approach, with a focus
on long-term value creation rather than short-term gains. 39