Best Quotes from The Intelligent Investor by Benjamin Graham with Page Numbers

An investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return.

We must prevent our readers from accepting the common jargon which applies the term 'investor' to anybody and everybody in the stock market.

The distinction between investment and speculation in common stocks has always been a useful one and its disappearance is a cause for concern.

If you want to try your luck at it, put aside a portion— the smaller the better—of your capital in a separate fund for this purpose.

Speculation is always fascinating, and it can be a lot of fun while you are ahead of the game.

The investor cannot hope for better than average results by buying new offerings, or 'hot' issues of any sort.

To enjoy a reasonable chance for continued better than average results, the investor must follow policies which are inherently sound and promising.

Confusing speculation with investment is always a mistake.

The intelligent investor never dumps a stock purely because its share price has fallen.

The future of security prices is never predictable.

Holders of stocks, on the other hand, have the possibility that a loss of the dollar’s purchasing power may be offset by advances in their dividends and the prices of their shares.

It must be evident to the reader that we have no enthusiasm for common stocks at these levels.

The intelligent investor must always be on guard against whatever is unexpected and underestimated.

Just because of the uncertainties of the future the investor cannot afford to put all his funds into one basket.

Common stocks have indeed done better than bonds over a long period of time in the past.

There is no close time connection between inflationary (or deflationary) conditions and the movement of common-stock earnings and prices.

In the memorable words of the elder J. P. Morgan, 'They will fluctuate.'

The most important of these have been a rise in wage rates exceeding the gains in productivity.

The investor has no sound basis for expecting more than an average overall return.

The possibility of large-scale inflation remains, and the investor must carry some insurance against it.

The investor’s portfolio of common stocks will represent a small cross-section of that immense and formidable institution known as the stock market.

Prudence suggests that he have an adequate idea of stock-market history, in terms particularly of the major fluctuations in its price level.

With this background he may be in a position to form some worthwhile judgment of the attractiveness or dangers of the level of the market at different times.

In general the performance since World War II has been superior to that of earlier decades, but the advance in the 1960s was less pronounced than that of the 1950s.

Today’s investor cannot tell from this record what percentage gain in earnings, dividends and prices he may expect in the next ten years, but it does supply all the encouragement he needs for a consistent policy of common-stock investment.

The rates of growth in all three categories are quite variable.

We must weigh our reasoning against the contrary reasoning they will hear from most competent and experienced people on Wall Street.

The principles of investment... would call for the following policy under 1964 conditions, in order of urgency: No borrowing to buy or hold securities.

Investors should not conclude that the market level is dangerous merely because they read it in this book.

Every individual must make his own decision and accept responsibility therefor.

The rate of return sought should be dependent, rather, on the amount of intelligent effort the investor is willing and able to bring to bear on his task.

The minimum return goes to our passive investor, who wants both safety and freedom from concern.

The average man operates, and apparently must operate, in opposite fashion that we have had the great advances and collapses of the past.

It is extremely simple; it aims unquestionably in the right direction; it gives the follower the feeling that he is at least making some moves in response to market developments.

The hard part is to adopt it and to stick to it.

The very heart of Graham’s approach is to replace guesswork with discipline.

The unexpected can strike anyone, at any age.

Our view is different.

A program of that kind is not especially complicated; the hard part is to adopt it.

If you have time to spare, are highly competitive, think like a sports fan, and relish a complicated intellectual challenge, then the active approach is up your alley.

Common stocks have offered a considerable degree of protection against the erosion of the investor's dollar caused by inflation.

The average annual return produced by stocks over the previous 20 years was 3.1%, versus 3.9% for long-term Treasury bonds.

For patient investors who reinvested their income, stock returns were positive over this otherwise dismal period.

Dividends are the greatest force in stock investing.

The defensive investor cannot afford to be without an appreciable proportion of common stocks in his portfolio.

The investor should impose some limit on the price he will pay for an issue in relation to its average earnings.

The idea of risk is often extended to apply to a possible decline in the price of a security.

A properly executed group investment in common stocks does not carry any substantial risk of this sort.

For a defensive investor, owning a diversified portfolio of stocks is both sensible and vital.

By putting every investment decision on autopilot, you drop any self-delusion that you know where stocks are headed.

The ‘aggressive’ investor should start from the same base as the defensive investor.

In each case he will want a well-reasoned justification for the departure.

The most useful generalizations for the enterprising investor are of a negative sort.

Experience clearly shows that it is unwise to buy a bond or a preferred which lacks adequate safety merely because the yield is attractive.

If you are willing to assume some risk you should be certain that you can realize a really substantial gain in principal value if things go well.

Much less for the lower coupons.

The perplexities of investment arise from the inherent uncertainty of the future.

The heedlessness of the public and the willingness of selling organizations to sell whatever may be profitably sold can have only one result—price collapse.

An elementary requirement for the intelligent investor is an ability to resist the blandishments of salesmen offering new common-stock issues during bull markets.

It is easy money. For every dollar you make in this way you will be lucky if you end up by losing only two.

The enterprising investor, by definition, will devote a fair amount of his attention and efforts toward obtaining a better than run-of-the-mill investment result.

Buying carefully chosen 'growth stocks'.

It is obvious that if one confines himself to a few chosen instances, based on hindsight, he could demonstrate that fortunes can readily be either made or lost in the growth-stock field.

An investor without such close personal contact will constantly be faced with the question of whether too large a portion of his funds are in this one medium.

To obtain better than average investment results over a long pull requires a policy of selection or operation possessing a twofold merit: (1) It must meet objective or rational tests of underlying soundness; and (2) it must be different from the policy followed by most investors or speculators.

If we assume that it is the habit of the market to overvalue common stocks which have been showing excellent growth or are glamorous for some other reason, it is logical to expect that it will undervalue—relatively, at least—companies that are out of favor because of unsatisfactory developments of a temporary nature.

The key requirement here is that the enterprising investor concentrate on the larger companies that are going through a period of unpopularity.

The market is fond of making mountains out of molehills and exaggerating ordinary vicissitudes into major setbacks.

The concept of buying 'unpopular large companies' suggests an investment approach that should prove both conservative and promising.

This method has shown highly successful results.

If you want to speculate do so with your eyes open, knowing that you will probably lose money in the end.

The investor can scarcely take seriously the innumerable predictions which appear almost daily and are his for the asking.

The farther one gets from Wall Street, the more skepticism one will find, we believe, as to the pretensions of stock-market forecasting or timing.

A substantial rise in the market is at once a legitimate reason for satisfaction and a cause for prudent concern.

Market fluctuations are there for your convenience, either to be taken advantage of or to be ignored.

The true investor is in that very position when he owns a listed common stock. He can take advantage of the daily market price or leave it alone.

Let us return to our comparison between the holder of marketable shares and the man with an interest in a private business.

The happiness of the wise grows out of their own free acts.

In investing, it’s not about crossing the finish line before anybody else but just making sure that you do cross it.

Investing intelligently is about controlling the controllable.

The intelligent investor is a realist who sells to optimists and buys from pessimists.

It is a violation of Federal law for an open-end mutual fund, a closed-end fund, or an exchange-traded fund to sell shares to the public unless it has registered with the SEC.

The investor who wants to make an intelligent commitment in fund shares has thus a large and somewhat bewildering variety of choices before him.

Has it done a good job for its shareholders? In the most general way, how have fund investors fared as against those who made their investments directly?

The average individual who put his money exclusively in investment-fund shares in the past ten years has fared better than the average person who made his common-stock purchases directly.

The mutual-fund industry has promoted good habits of savings and investment; they have protected countless individuals against costly mistakes in the stock market.

All financial experience up to now indicates that large funds, soundly managed, can produce at best only slightly better than average results over the years.

The real choice of the average individual has not been between constructing and acquiring a well-balanced common-stock portfolio or doing the same thing, a bit more expensively, by buying into the funds.

The best funds often close to new investors—permitting only their existing shareholders to buy more.

It is part of the armament of the intelligent investor to know about these 'Extraordinary Popular Delusions' and to keep as far away from them as possible.

The investment of money in securities is unique among business operations in that it is almost always based in some degree on advice received from others.

When they, or nonbusiness people, rely on others to make investment profits for them, they are expecting a kind of result for which there is no true counterpart in ordinary business affairs.

If the investor demands more than an average return on his money, or when his adviser undertakes to do better for him, that the question arises whether more is being asked or promised than is likely to be delivered.

The leading investment-counsel firms make no claim to being brilliant; they do pride themselves on being careful, conservative, and competent.

Their primary aim is to conserve the principal value over the years and produce a conservatively acceptable rate of income.

Perhaps their chief value to their clients lies in shielding them from costly mistakes.

Most security buyers obtain advice without paying for it specifically.

Investors who are prepared to pay a fee for the management of their funds may wisely select some well-established and well-recommended investment-counsel firm.

The intelligent investor will pay attention to the advice and recommendations received from investment banking houses, especially those known by him to have an excellent reputation.

Only in the exceptional case, where the integrity and competence of the advisers have been thoroughly demonstrated, should the investor act upon the advice of others without understanding and approving the decision made.

In 44 years of Wall Street experience and study, I have never seen dependable calculations made about common-stock values, or related investment policies, that went beyond simple arithmetic or the most elementary algebra.

Whenever calculus is brought in, or higher algebra, you could take it as a warning signal that the operator was trying to substitute theory for experience, and usually also to give to speculation the deceptive guise of investment.

Investment history shows that bonds and preferred stocks that have met stringent tests of safety, based on the past, have in the great majority of cases been able to face the vicissitudes of the future successfully.

The alert investor should ask, 'How dependable are tests of safety that are measured by past and present performance, in view of the fact that payment of interest and principal depends upon what the future will bring forth?'

A large part of the value found for a high-multiplier growth stock is derived from future projections which differ markedly from past performance.

The ideal form of common-stock analysis leads to a valuation of the issue which can be compared with the current price to determine whether or not the security is an attractive purchase.

The prevalence of wide diversification is in itself a pragmatic repudiation of the fetish of 'selectivity,' to which Wall Street constantly pays lip service.

Good managers keep finding ways of putting that cash to productive use. In the long run, companies that meet this definition are virtually certain to grow in value, no matter what the stock market does.

Ultimately victory usually goes to the doers, not to the talkers.

The intelligent investor excels by making decisions that are not dependent on the accuracy of anybody’s forecasts, including his or her own.

Don’t take a single year’s earnings seriously.

If you do pay attention to short-term earnings, look out for boobytraps in the per-share figures.

The little a at the outset is explained in a footnote to refer to 'primary earnings,' before special charges.

The investor or speculator interested in ALCOA shares...might say to himself: 'Not so bad...'

It is easy to say that they are not part of the 'regular operating results'...but if so, where do they belong?

Companies that chronically exclude bad news from their financial results...are taking a page from Hazlitt.

Investors must always count the sunny and dark hours alike.

Stock valuations are really dependable only in exceptional cases.

The market’s judgment on price is often unreliable.

The intelligent investor must carefully evaluate the costs of trading and taxes before attempting to take advantage of any price discrepancy.

High valuations entail high risks.

The sound basis for preferring eltra and Emhart to Emerson and Emery would be the client's considered conclusion that he preferred value-type investments to glamour-type investments.

A careful investor must always check the fundamentals and be wary of overenthusiasm for good performance.

The investor's diversified list of common stocks should perform well enough across the years.

What really counts is the history of continuance without interruption.

An experienced security analyst... would have hesitated to recommend that a holder of Emerson or Emery exchange his shares for eltra or Emhart... unless the holder understood clearly the philosophy behind the recommendation.

In the face of changing markets, a foundational principle remains: Adequate size, a sufficiently strong financial condition, and continued dividends are essential.

Long experience tells us that investments selected on sound principles should perform well over time.

Profitability and stability are essential measures of a company's strength.

Many financial analysts will find Emerson and Emery more interesting and appealing stocks than the other two— primarily because of their better ‘market action.’

"He that resteth upon gains certain, shall hardly grow to great riches; and he that puts all upon adventures, doth oftentimes break and come to poverty: it is good therefore to guard adventures with certainties that may uphold losses."

"The defensive investor can achieve this goal simply by buying a low-cost index fund, ideally one that tracks the return of the total U.S. stock market."

"Our basic recommendation is that the stock portfolio, when acquired, should have an overall earnings/price ratio—the reverse of the P/E ratio—at least as high as the current high-grade bond rate."

"If one could select the best stocks unerringly, one would only lose by diversifying."

"It is striking to observe that the relative price/earnings ratios of the industrials and the utilities have changed places during the past two decades."

"The best values today are often found in the stocks that were once hot and have since gone cold."

"The universal, accepted idea of diversification is, in part at least, the negation of the ambitious pretensions of selectivity."

"If you build a diversified basket of stocks whose current assets are at least double their current liabilities, and whose long-term debt does not exceed working capital, you should end up with a group of conservatively financed companies with plenty of staying power."

"Investing your money on the basis of what these myopic soothsayers predict for the coming year is as risky as volunteering to hold up the bulls-eye at an archery tournament for the legally blind."

"While the process of regulation has often been cumbersome and perhaps dilatory, it has not prevented the utilities from earning a fair return on their rising invested capital over many decades."

To get average results—e.g., equivalent to the performance of the DJIA—should require no special ability of any kind.

It is easy in the world to live after the world’s opinion; it is easy in solitude to live after our own; but the great man is he who in the midst of the crowd keeps with perfect sweetness the independence of solitude.

For a variety of reasons, most members of the public who put their money in common stocks of their own choice fail to do nearly as well.

But if it is true that a fairly large segment of the stock market is often discriminated against or entirely neglected in the standard analytical selections, then the intelligent investor may be in a position to profit from the resultant undervaluations.

A small percentage of investors can excel at picking their own stocks. Everyone else would be better off getting help, ideally through an index fund.

A patient holder, who had bought the shares in March 1964 at 20 would have had a profit of 165% in 31⁄2 years—a noncompounded annual return of 47%.

If he followed our philosophy in this field he would be more likely the buyer of important cyclical enterprises—such as steel shares perhaps—when the current situation is unfavorable.

There are many roads to Jerusalem.

Only a limited few can accomplish either aim.

The very multiplication of the number of security analysts may have played an important part in bringing about this result.

"The investor receives the superior protection of a bond or preferred stock, plus the opportunity to participate in any substantial rise in the value of the common stock."

"The safest conclusion that can be reached is that convertible issues are like any other form of security, in that their form itself guarantees neither attractiveness nor unattractiveness."

"You cannot by a mere ingenious device make a bargain much better for both sides."

"What Wall Street gives with one hand, it usually takes away with the other."

"The spectacular opportunities in convertibles prove to be illusory in practice, and the overall experience is marked by fully as many substantial losses... as there are gains of similar magnitude."

"A conservative person is likely to say that beyond 125 his position has become too speculative, and therefore he sells and makes a gratifying 25% profit."

"Never convert a convertible bond."

"The addition of the conversion privilege often—perhaps generally—betrays an absence of genuine investment quality for the issue."

"You should look more than twice before he buys them."

"The crime of the warrants is in 'having been born.'"

The word “extremely” in the title is a kind of pun, because the histories represent extremes of various sorts that were manifest on Wall Street in recent years.

They hold instruction, and grave warnings, for everyone who has a serious connection with the world of stocks and bonds.

Our basic point is that the application of the simplest rules of security analysis and the simplest standards of sound investment would have revealed the fundamental weakness.

But any analyst worth his salt would have wondered how 'real' were earnings of this sort reported without the necessity of paying any income taxes thereon.

The speculative public is incorrigible.

The primary question raised in our mind by the Ling-Temco-Vought story is how the commercial bankers could have been persuaded to lend the company such huge amounts of money.

If the Ling-Temco-Vought case will serve to keep commercial banks from aiding and abetting unsound expansions of this type in the future, some good may come of it at last.

The moral: Security analysts should do their elementary jobs before they study stock-market movements.

The past few years have provided enough new cases of Graham’s extremes to fill an encyclopedia.

It will buy anything, at any price, if there seems to be some 'action' in progress.

A profitable company can always put its current position in shape by some form of permanent financing.

The relationship between price and indicated value has also differed greatly from one case to another.

In the short run the market is a voting machine, but in the long run it is a weighing machine.

The investor must be prepared for this type of adverse market movement in future stock markets.

There are only good stock prices, which come and go.

An experienced analyst would have conceded great momentum to Block, implying excellent prospects for future growth.

How can one acquire a confidence in one’s judgement that will make one act independently of the crowd?

The thing that hath been, it is that which shall be; and that which is done is that which shall be done: and there is no new thing under the sun.

The trouble is, rather, that their price contained too much "promise" and not enough actual performance.

The market price is only a reflection of temporary demand and supply—not an indication of real value.

Shareholders are justified in raising questions as to the competence of the management when the results are unsatisfactory.

The low market prices, in turn, attract the attention of companies interested in diversifying their operations.

It can be stated as a rule that poor managements are not changed by action of the public shareholders.

Those individual shareholders who have enough gumption to make their presence felt at annual meetings will not need our counsel on what points to raise with the managements.

The profits 'belong' to the shareholders, and they are entitled to have them paid out within the limits of prudent management.

It is high time they thought about modernizing their major financial practices, not the least important of which is their dividend policy.

Stockholders should wake up.

Certainly, there is just as much reason to exercise care and judgment in being as in becoming a stockholder.

A few of the more substantial stockholders should become convinced that a change is needed and should be willing to work toward that end.

If you’ve never read the proxy of a stock you own, and the company goes bust, the only person you should blame is yourself.

This too will pass.

MARGIN OF SAFETY.

The margin of safety concept is essential to the choice of sound bonds and preferred stocks.

The function of the margin of safety is, in essence, that of rendering unnecessary an accurate estimate of the future.

The margin above charges may be stated in other ways…but the underlying idea remains the same.

The investor may have no choice but to incur [risks]—for otherwise he may run an even greater risk of holding only fixed claims payable in steadily depreciating dollars.

The danger to investors lies in concentrating their purchases in the upper levels of the market.

The margin of safety is the difference between the percentage rate of the earnings on the stock at the price you pay for it and the rate of interest on bonds.

There must be present a true margin of safety.

It is amazing to see how many capable businessmen try to operate in Wall Street with complete disregard of all the sound principles through which they have gained success in their own undertakings.