Key market tips shared by Benjamin Graham in ‘‘The Intelligent Investor’

Vimal Joshi
Updated: 15 Dec 2021, 12:54 PM IST

As you swim with the tide, it is vital to halt, take a break, look around and assess the strategies you have been following. The best way to do it is to go back to the basics. Here, we give a lowdown on the most valuable investment tips given by one of the leading financial experts of last century — Mr Benjamin Graham

Benjaman Graham suggested investors to try to make money from the irrational exuberance of the market instead of taking part in it. 

Benjaman Graham suggested investors to try to make money from the irrational exuberance of the market instead of taking part in it. 

The father of value investing, Benjamin Graham, sowed the seeds of fundamental analysis by writing a book ‘The Intelligent Investor: The Definitive Book on Value Investing’. This book later became a Bible of sorts for the students of financial markets around the world in the decades to come.

Even now, the tips offered by him are still as relevant as they were decades ago.


We list seven key tips shared by Benjamin Graham in his path-breaking book:

1. Avoid taking part in irrational exuberance: Try to make money from the irrational exuberance of the market instead of taking part in it. Graham exhorted the investors to profit from the market’s whims rather than being a party to it.

2. Price value discrepancy: Investors should look for the stocks which have a market price lower than their intrinsic value. After analysing a stock based on a company’s assets, earnings and dividend, if the investor finds the intrinsic value is less than the market value – the stock is overpriced. Else, it is underpriced.

3. Margin of safety: Graham wrote about the necessity to keep margin of safety by an investor. There are various ways to do it. One is to buy undervalued stocks. The second is through fluctuation of the stock market, and irrationality of investors. Another way to achieve margin of

safety is by buying stocks which offer high dividends.

4. Don’t trust Mr Market: Graham gives a very practicable and funny allegory of Mr Market to ignore all the street voices. The rise or fall of market benchmark index (Sensex or Nifty 50) can be seen as one individual Mr Market whose mood swings may fluctuate from irrational exuberance to extreme pessimism. He turns up at a stock broker’s office every day and offers to buy the stocks at different prices.

Those prices can be appropriate or completely off the mark. And it is the stockholders’ discretion whether to buy the stocks at that price or not, but don’t judge your stockholding based on what Mr Market is saying.

5 About fundamental analysis: The decision should be based on numbers and performance and not on emotions and hype. You can look at EPS, P/E ratio and long-term growth rate to determine the company’s growth and potential. You should not invest in a company only because you know it and use its products. If the fundamental analysis doesn’t advise investing in it, don’t invest in it.

These are some of the tips shared by Benjamin Graham in his bestseller book ‘The Intelligent Investor’.

6. Consistent investment: Graham wrote about the dollar cost averaging (DCA) to emphasise the point that an investor should park a consistent amount of money at regular intervals (monthly or quarterly) and not based on what is the stock price that time.

This is an advice which gains significance in today’s era of mutual funds where investors prefer investments via SIP (systematic investment plan) where you invest a fixed amount every month e.g. 1,000 a month.

7. Diversification is the key: It is an age-old maxim that diversification is the key. In the book, Graham cautions against putting all your eggs in one basket.

We can summarise the book’s learnings by highlighting that an intelligent investor does not get carried away with unreasonable suggestions of Mr Market, and instead carries out fundamental analysis, seeks safe and steady returns, and works towards minimising their risk and loss.


First Published: 15 Dec 2021, 12:54 PM IST
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