The Intelligent Investor

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THE INTELLIGENT INVESTOR
A BOOK OF PRACTICAL COUNSEL
REVISED EDITION

B E NJAM I N G RAHAM
Updated with New Commentary by Jason Zweig

An e-book excerpt from

To E.M.G.

Through chances various, through all vicissitudes, we make our way. . . . Aeneid

Contents

Epigraph Preface to the Fourth Edition, by Warren E. Buffett A Note About Benjamin Graham, by Jason Zweig Introduction: What This Book Expects to Accomplish COMMENTARY ON THE INTRODUCTION

iii
viii

x 1 12 18 35 47 58 65 80 88 101 112 124 133 145 155 179 188

1.

Investment versus Speculation: Results to Be Expected by the Intelligent Investor COMMENTARY ON CHAPTER 1

2. 3.

The Investor and Inflation
COMMENTARY ON CHAPTER 2

A Century of Stock-Market History: The Level of Stock Prices in Early 1972 COMMENTARY ON CHAPTER 3

4. 5. 6.

General Portfolio Policy: The Defensive Investor
COMMENTARY ON CHAPTER 4

The Defensive Investor and Common Stocks
COMMENTARY ON CHAPTER 5

Portfolio Policy for the Enterprising Investor: Negative Approach COMMENTARY ON CHAPTER 6

7.

Portfolio Policy for the Enterprising Investor: The Positive Side COMMENTARY ON CHAPTER 7

8.
iv

The Investor and Market Fluctuations

v

Contents
COMMENTARY ON CHAPTER 8

213 226 242 257 272 280 302 310 322 330 339 347 367 376 396 403 418 422 438 446 473 487 497 512 525 532 535

9. Investing in Investment Funds
COMMENTARY ON CHAPTER 9

10. The Investor and His Advisers
COMMENTARY ON CHAPTER 10

11. Security Analysis for the Lay Investor: General Approach COMMENTARY ON CHAPTER 11

12. Things to Consider About Per-Share Earnings
COMMENTARY ON CHAPTER 12

13. A Comparison of Four Listed Companies
COMMENTARY ON CHAPTER 13

14. Stock Selection for the Defensive Investor
COMMENTARY ON CHAPTER 14

15. Stock Selection for the Enterprising Investor
COMMENTARY ON CHAPTER 15

16. Convertible Issues and Warrants
COMMENTARY ON CHAPTER 16

17. Four Extremely Instructive Case Histories
COMMENTARY ON CHAPTER 17

18. A Comparison of Eight Pairs of Companies
COMMENTARY ON CHAPTER 18

19. Shareholders and Managements: Dividend Policy
COMMENTARY ON CHAPTER 19

20. “Margin of Safety” as the Central Concept of Investment COMMENTARY ON CHAPTER 20

Postscript
COMMENTARY ON POSTSCRIPT

Appendixes 1. The Superinvestors of Graham-and-Doddsville 537

Contents

vi

2. Important Rules Concerning Taxability of Investment Income and Security Transactions (in 1972) 561 3. The Basics of Investment Taxation (Updated as of 2003) 4. The New Speculation in Common Stocks 5. A Case History: Aetna Maintenance Co. 6. Tax Accounting for NVF’s Acquisition of Sharon Steel Shares 7. Technological Companies as Investments Endnotes Acknowledgments from Jason Zweig Index About the Authors Credits Front Cover Copyright About the Publisher 562 563 575 576 578 579 589 591

The text reproduced here is the Fourth Revised Edition, updated by Graham in 1971–1972 and initially published in 1973. Please be advised that the text of Graham’s original footnotes (designated in his chapters with superscript numerals) can be found in the Endnotes section beginning on p. 579. The new footnotes that Jason Zweig has introduced appear at the bottom of Graham’s pages (and, in the typeface used here, as occasional additions to Graham’s endnotes).

Preface to the Fourth Edition, by Warren E. Buffett

I read the first edition of this book early in 1950, when I was nine-

teen. I thought then that it was by far the best book about investing ever written. I still think it is. To invest successfully over a lifetime does not require a stratospheric IQ, unusual business insights, or inside information. What’s needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework. This book precisely and clearly prescribes the proper framework. You must supply the emotional discipline. If you follow the...
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