An Ode to Sound Investing Advice from the Intelligent Investor – Part 3

So we are now into the final set of quotes from The Intelligent Investor by Benjamin Graham. I have taken great care to choose the quotes that would make sense to a larger audience and not just equity investors. The book, in my opinion, is quite dry. But then, what can you expect from an investing book? Nevertheless, the advice imparted by Benjamin Graham is worth considering. Being not much of a speculator myself, his thoughts resonated with me.

Without further ado, let’s start Part 3.

It is easy for us to tell you not to speculate; the hard thing will be for you to follow this advice. Let us repeat what we said at the outset: If you want to speculate do so with your eyes open, knowing that you will probably lose money in the end; be sure to limit the amount at risk and to separate it completely from your investment program.

The investor can scarcely take seriously the innumerable predictions which appear almost daily and are his for the asking. Yet in many cases he pays attention to them and even acts upon them. Why? Because he has been persuaded that it is important for him to form some opinion of the future course of the stock market, and because he feels that the brokerage or service forecast is at least more dependable than his own.

Those formulas that gain adherents and importance do so because they have worked well over a period, or sometimes merely because they have been plausibly adapted to the statistical record of the past. But as their acceptance increases, their reliability tends to diminish. This happens for two reasons: First, the passage of time brings new conditions which the old formula no longer fits. Second, in stock-market affairs the popularity of a trading theory has itself an influence on the market’s behavior which detracts in the long run from its profit-making possibilities.

The most realistic distinction between the investor and the speculator is found in their attitude toward stock-market movements. The speculator’s primary interest lies in anticipating and profiting from market fluctuations. The investor’s primary interest lies in acquiring and holding suitable securities at suitable prices.

The happiness of those who want to be popular depends on others; the happiness of those who seek pleasure fluctuates with moods outside their control; but the happiness of the wise grows out of their own free acts.

Marcus Aurelius

If you listen to financial TV, or read most market columnists, you’d think that investing is some kind of sport, or a war, or a struggle for survival in a hostile wilderness. But investing isn’t about beating others at their game. It’s about controlling yourself at your own game.

The whole point of investing is not to earn more money than average, but to earn enough money to meet your own needs.

Putting up to a third of your stock money in mutual funds that hold foreign stocks (including those in emerging markets) helps insure against the risk that our own backyard may not always be the best place in the world to invest.

The most basic possible definition of a good business is this: It generates more cash than it consumes. 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.

When you research a company’s financial reports, start reading on the last page and slowly work your way toward the front. Anything that the company doesn’t want you to find is buried in the back—which is precisely why you should look there first.

Graham’s criterion of financial strength still works: 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.

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.

At some point in its life, almost every stock is a bargain; at another time, it will be expensive. Although there are good and bad companies, there is no such thing as a good stock; there are only good stock prices, which come and go.

As Graham liked to say, in the short run the market is a voting machine, but in the long run it is a weighing machine. Yahoo! won the short-term popularity contest. But in the end, it’s earnings that matter—and Yahoo! barely had any.

If you buy a stock purely because its price has been going up—instead of asking whether the underlying company’s value is increasing—then sooner or later you will be extremely sorry. That’s not a likelihood. It is a certainty.

Losing some money is an inevitable part of investing, and there’s nothing you can do to prevent it. But, to be an intelligent investor, you must take responsibility for ensuring that you never lose most or all of your money.

For the intelligent investor, Graham’s “margin of safety” performs the same function: By refusing to pay too much for an investment, you minimize the chances that your wealth will ever disappear or suddenly be destroyed.

Ultimately, financial risk resides not in what kinds of investments you have, but in what kind of investor you are. If you want to know what risk really is, go to the nearest bathroom and step up to the mirror. That’s risk, gazing back at you from the glass.

Part 1

Part 2

The Best Quotes from Rumi’s Little Book of Life

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Rumi has a way with words. His love for all things divine and spiritual is like a medicinal balm for a tired soul. I am always swept away by his verbal dexterity and his nonchalant aura. He has the power to induce both transcendence and melancholy in a single frame and you are left craving for more by the end of each couplet.

There is a neat little book available for Amazon Prime subscribers for free called “Rumi’s Little Book of Life.” It is a quick read filled with wisdom, dreamy poetry, and wonder. An enchanting journey that takes you through Rumi’s ruminations on life (see what I did there?).

Here are a few of my favorite quotes from the book.

Why do you seek water when you are the stream?

Indulging our pride, we run after every fleeting image.

How odd that being so unimportant we cultivate such grand illusions.

The intellect is luminous and seeks justice so why does the dark ego prevail over it? Because the ego is at home in the body while the intellect is only a visitor, the ego-dog at his own door is like a lion.

Embrace sorrowful thoughts for they sweep the house of your heart clean, scatter the withered leaves, and pull out the twisted roots, preparing the ground for the new shoots of joy. What sorrow takes away from the heart it replaces with something better. Without the fury of thunder and lightning the plants will be scorched by the sun. Be grateful for all you receive, good and bad alike, for it may be a gift from the treasury of Spirit that will bring the fulfilment of your most secret desire.

You carry a basket full of bread, yet you beg for crumbs from door to door. You are up to your knees in water, yet you beg for a drink from everyone you see. Why are you so blind and stubborn? Beg at the door of your heart instead.

My heart whispered, “Do not be so concerned, in the midst of people I am like a gold coin hidden in the dust, but even gold cannot find buyers unless it is brought out from the depths of the mine into the light.”

The night is blind to the glory of dawn man is blind to the glory of the lover. He who complains of burning is not a lover for the lover’s heart is constantly on fire.

Of the rain at night no one is aware for every soul is asleep. Yet the freshness of the rose garden in the morning is evidence of the rain that no one saw.

Many pass their lives deprived of love unaware that their heart is dark and narrow where the sun never penetrates. A grave is better than such a heart.

The body is like a pot with the lid on. Lift the lid to see if it is filled with the Water of Life or the poison of death. Focus on the contents and you will become a master focus on the pot and you will be misguided. Your eyes only see the body while the spiritual eye perceives the soul.

My heart twisted with passion in the fire of your words. Now I see what I saw as fire was only ice what I saw as water, only a mirage and our story, an old forgotten dream.

There are hundreds of religious books yet they are all one chapter, there are a hundred different holy places yet only one altar. All roads lead to the one House from one seed a thousand ears of corn emerge. There are many kinds of food and drink with one purpose only, to feed. The eyes of hunger are greedy, when satiated with one kind of food all others become repulsive to your heart. I dissolved as a grain of salt in your Sea of Serenity. Nothing remained, no faith, no certainty, no doubt. In my heart a star was born and inside all worlds dissolved.