November 12, 2018
A Report on The Intelligent Investor by Benjamin Graham
To be frank, it has been a long while since I have genuinely read a book. Between classes that
made me read books I did not like, and how busy I have been with school and networking, books are the
last item on my mind. When I saw that a book report was being assigned for this class, however, I was
actually excited, and for once took the opportunity to read about something at a time when I am trying to
absorb the most I can about the financial industry. Although it is a book intended with educating the
average person on proper investment procedure, there were a few topics in Benjamin Graham’s The
Intelligent Investor, which I believe catered very well to anyone who is interested in a career in
investment banking, or finance in general – the history of the stock market, fluctuations in the market, and
advisers of the investor – I will be focusing the attention of my report on these three.
We study history for two reasons: to learn how something came to manifest itself in its present
state, and to avoid repeating mistakes made in the past. To develop a sound foundation of the inner
workings of the stock market, the most obvious place I can think to look at is how the institution
functioned in the past. One of the most interesting points of the chapter titled “A Century of Stock-Market
History” is when Graham is able to correctly predict a bear market two years in advance. In the earliest
years of his assessment, his analyses turned out inaccurate, but two times later aligned more so with what
ended up happening. Graham notes that in order to be in a position to make a rational judgment about the
stability and outlook of the stock market, one needs to have an understanding of the “major fluctuations in
its price level and of the varying relationships between stock prices as a whole and their earnings and
dividends,”1 illustrating the correlation in these three variables through several graphics. Another
interesting suggestion that Graham notes is a “rule of opposites,” 2 advising that when investor sentiment
in the long-term is upbeat, the more likely it is these investors will be wrong in the short-term. He
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2
Graham, Benjamin. (2013). The Intelligent Investor: Definitive Book On Value Investing. Harper Collins. P. 65
Graham. P. 67
concludes the chapter by analyzing performance outlook for the markets for the year 1972. As someone
studying finance and pursuing investment banking, I am constantly encouraged to read the news to be
able to see the interaction of countless variables and their influence on the performance of our stock
market. This chapter aids me in that goal, by giving me background as to prior market performance,
allowing me to see how different variables, such as the stock price, earnings and dividends, can be viewed
in conjunction to provide market outlook; the chapter also warned me not to fall into the trap of believing
over-enthusiastic investors, and going opposite instead – I will be careful not to repeat history’s mistakes.
Since our work as investment bankers revolves around the overall performance of the market, it is
important for people within this industry to understand fluctuations in the market. In the chapter “The
Investor and Market Fluctuations” Graham does a good job in presenting advice for identifying and
taking a rational approach to tackle market volatility. Graham opens the chapter with a point that
“common stocks, even of investment grade, are subject to recurrent and wide fluctuations in their prices,” 3
demonstrating that the idea of volatility is applicable to all stocks. The performance of certain types of
stock under prevailing market conditions should be of significant consideration when taking any
comparable analysis approach to valuation during a typical M&A deal. This is most applicable because
current market conditions may not be reflective of what a stock may truly be valued at – it just so happens
that due to investor sentiment, a stock may have fluctuated unnaturally – this is mitigated through an
intrinsic analysis, such as the discounted cash flow. A caveat to fluctuations comes into play when
considering the cyclicality of certain stocks, which may depend on season, geopolitics, or sentiment. For
example, stocks such as construction, may only perform well during a period when people are buying
more homes – this fluctuation is an important consideration to make when conducting valuation for a
company within this sector. This chapter in particular is highly applicable to investment banking in that it
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Graham. P. 189
gives insight into market fluctuations, something not only impacting individual investors, but also
professionals who work with companies affected by the fluctuations.
The final piece I believe is of great relevance to my career is obviously the one about the
investment banker found in the chapter “The Investor and His Advisers.” In this chapter, Graham runs
through several types of advisers that exist within the realm of the financial industry. Undoubtedly the
highlight of this chapter is when he describes the investment banker; he proceeds to make mention of
something that actually plays a significant role in why I want to do investment banking: “Investment
banking is perhaps the most respectable department of the Wall Street community, because it is here that
finance plays its constructive role of supplying new capital for the expansion of industry.” 4 For me, one of
the underlying reasons behind my drive to work as an investment banker is the means I provide for
innovative companies to continue their work. I have always been fascinated with entrepreneurs who have
the desire to keep pushing boundaries – be it finding a cure for cancer or building a colony on Mars – it
excites me to know that I am entering the profession which helps make these impressive goals a reality.
In its great length, I was not able to spend as much time on the book as I would have liked to.
Graham provided deep insight for me both as an individual investor looking to gain knowledge in
understanding the markets for my personal investments, but also as an aspiring investment banker looking
to understand the roots of the business I am breaking into. Understanding the history of how the markets
worked back then to how they came to be, knowing why and how the market fluctuates and how to take
advantage of it, and reading an additional piece on investment bankers, were three big pieces I was able to
take away and tie together to help me know more about the financial industry, and bolster my passion for
this industry. I thoroughly enjoyed the book, and plan on revisiting it over winter break, and even over
summer or when I have some spare time.
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Graham. P. 268