Mr Graham The Intelligent Investor Sparknotes

Sir Isaac Newton, the famous English physicist and mathematician, was undoubtedly one of the smartest people in the history. Back in the spring of 1720, Sir Newton owned shares of the South Sea Company, the hottest stock in England at that time. At first, he sensed the market was going rogue, and as O’Farrell recorded in his book in 2007, he described himself as a man who “could calculate the motions of the heavenly bodies, but not the madness of the people.” He sold his South Sea shares, pocketing a huge profit of 7000 pounds; but just months later, watching the wild enthusiasm of the bull market and the rising South Sea stock price, Sir Newton regretted his sell order before, and bought back the stock at a much higher price. Soon, the bubble …show more content…
Mr. Graham’s objective of writing this book was to offer an investment policy book to all the investors, either professional or ordinary, either individual or institutional. Mr. Graham, based on his precious experience during the Great Depression, discovered that most typical investors have a behavioural tendency to “follow the market” or “follow the popularity” with different and numerous poor investment habits. They often believe they can beat the market and earn huge profits easily solely based on the unrealised profit on their accounts; however, they do not understand the companies as well as their underlying assets at all, and they do not realize the power of potential risks from different aspects. After observing and collecting these dangerous investing habits and thoughts, Graham concludes an alternative investing strategy to us. In this book, he teaches us how to avoid the pitfalls of allowing our emotions to control our investment decisions, and provides the foundation for making business-like decisions based on the basic “fundamental investing principles”. Moreover, through this book, Mr. Graham tells much practical advice to the common investors and lays out his philosophy of investing and some key investing ideas, which permit any investors to earn stable profits and reduce the risk by following his investing …show more content…
Market” and “margin of safety”, that are introduced in this book. Firstly, “Mr. Market” is a metaphor. It demonstrates how a value investor should look at the market fluctuations. Mr. Graham says to imagine that one investor is a partner with Mr. Market in a private business. Each day Mr. Market shows up to speak what he thinks your share of the company is worth. For the most of the days he is completely reasonable and comes up with a price that is very close to what you believe the business is worth. However, some days he suffers from some crazy emotional problems and offers prices way out of line. Through this mimic imagination, Mr. Graham teaches us a lesson that we need to rationally determine when to buy from Mr. Market when he is irrationally pessimistic and to sell to him when he offers a surprising high price. After all, an intelligent investor will not react the same as Mr. Market, but will use it as an opportunity to buy when Mr. Market is too pessimistic and to sell when he is too optimistic. Secondly, “Margin of safety” are the three most crucial words in this book, as Mr. Graham put it in the final chapter, “the thread that runs through all the preceding discussion of investment policy”. Simply speaking, the margin of safety for an investment is the gap between the real value and the price paid. Although Mr. Graham demonstrates the importance of company valuation and financial positioning throughout the book, he admits in