Warren Buffet, the richest investor in the world, called this book “the best book on investing ever written” and I have to agree that it’s great.
The key idea behind the book is that a speculator and an investor are two very different people. Speculators try to beat the market, while investors ignore it most of the time and profit from it during its irrational passes. Wikipedia describes it best:
“Graham’s favorite allegory is that of Mr. Market, an obliging fellow who turns up every day at the shareholder’s door offering to buy or sell his shares at a different price. Often, the price quoted by Mr. Market seems plausible, but sometimes it is ridiculous. The investor is free to either agree with his quoted price and trade with him, or ignore him completely. Mr. Market doesn’t mind this, and will be back the following day to quote another price.
The point of this anecdote is that the investor should not regard the whims of Mr. Market as a determining factor in the value of the shares the investor owns. He should profit from market folly rather than participate in it. The investor is advised to concentrate on the real life performance of his companies and receiving dividends, rather than be too concerned with Mr. Market’s often irrational behavior.”
Of course, he gets into detail about various types of securities (bond, stocks, …) and provides an investment strategy for defensive or aggressive investors. Each chapter has great commentary about how his advice is holding up now (the book was written in the 40’s). Generally, it still works very well.
The most important chapters are chapters 8 and 20.
Rating: 6/10 Interesting material, gives a great way to think about investing but no practical guide for the normal investor.