An investment library: The Intelligent Investor

published 27 May 2016

The Intelligent Investor

There are many bookson value investing thetwo on this page areamong the most recent.However, the "bible"of the genre has to beThe Intelligent Investor,written by BenjaminGraham, who mentoredWarren Buffett and is considered thefather of value investing. The book isaimed at a lay audience, and is perhapsbest known for two key concepts: themetaphorical "Mr Market" and the"margin of safety".

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While Graham believed the market wasgenerally efficient in the long run, healso thought that in the short run it wasprone to swing between euphoria andpanic. Hence the idea of Mr Market, ajittery individual who is one day happyto buy shares at stratospheric prices,and desperate to sell at bargain basementvaluations the next. Grahamclaims it makes sense to buy sharesthat trade below their "intrinsic value",because in the long run they'll moveback to fair value or above.

How doyou calculate intrinsic value? He looksat many methods but admits it's trickyto do so precisely and that's wherethe "margin of safety" comes in. Byonly buying stocks that are extremelyundervalued, investors can protectthemselves from huge mistakes.

The book was first released in 1949.Graham's final revised editionappeared in 1973, shortly before he died in 1976. Investment writer JasonZweig released a revised edition in2003, which includes Graham's originaltext and Zweig's commentary aftereach chapter. Whichever version yougo for, this is a book that no self-respectinginvestor should be without.