Today I woke up to the news about a 15-year-old girl that committed suicide because her friend got better marks than her. Yes, you have read that correctly, there are no mistakes and it is way more usual than you think it is.
The story becomes more pity since this happened in India and the exam the news is referring to is 10th grade. As someone that had gone through this, I can tell that the certificate that comes with it doesn’t care about the marks. It for the most part is just used as proof of birth date.
Whatever, let that rest and take a glimpse of what it reflects for the rest of the world events. Almost every chaotic things that have happened in individual, societal, cultural, and national level can be traced to the ego of someone or a group.
The centuries of wars that have been fought to the couples you saw yesterday fighting the park, the lion’s share of their problem lies with ego. Ego is the ultimate component that spurs up racism, nationalism, and worst-case extremism.
What causes ego?
Ego is a sense of oneself. Ego is a natural-born enemy because of its ability to blind you to materialistic needs while ignoring the spiritual demands. When you compare yourself to others on materialistic factors like wealth, physic, looks, or in the above case -marks, the ego starts playing its games.
The question here is really if you should compare others with materialistic factors. Does it make any sense? The answer is a solid no. It only takes a little bit of common sense applied to derive the answer. That maybe the reason why almost all major religions in the world give the same harmonious answer. Whether you are a follower of Hinduism, Buddhism, Islam, or Christianity, all religions have pretty much similar conclusions.
The problem lies when we see religions through a materialistic view. None of the holy books are written to be seen as a solid physical story that happened sometime in the medieval or ancient human history. They are written as parallels to what should be seen in a spiritual point of view. All these books have war and gruesome depictions of violence. Are they telling us to pick up weapons and establish dominance? Are they telling us that war is inevitable?
Unfortunately for the majority, these are seen as material things. This makes all the difference in the world. The ultimate goal to achieve in all these religions is what can be scientifically classified as “ego death”.
When the Quran and the Bible tell you to convert people to Islam or Christianity, it never meant you to do it by force or offering. To be a follower of Islam or Christianity means to be free from your ego. But people relentlessly compare one religion over another materialistically and come up with bad conclusions. What Quran and Bible said is the same as the idea of “moksha” in Hinduism. A similar idea is there in Buddhism and all of them tell you what we can scientifically classify today as “ego death”.
It is however unfortunate and silly at the same time when we see these religions fighting each other to claim which one is better. This fighting is stemming from the human ego, the very thing these religions tried so hard to destroy. I think now is a very worthy time to the renaissance of the phrase: “You have become what you swore to destroy”. That’s pretty much how religion ended up in the modern world.
What is ego death?
The word sounds something dangerous of a mental condition and that may be true to an extend. Ego death is a temporary state of being that many people have achieved with the help of drugs. That could be one of the reasons you got terrified when you heard it but ego death is not something you are supposed to achieve via drugs. You are just damaging your brain.
Ego death is a state by which you achieve an unbiased perspective of you and the world around you. Everything and everyone around you become equal and nothing bothers your mental state of being. No materialistic factors are weighted in your thought process that helps you achieve the highest levels of unbiasedness. You will stop judging others by their physical or materialistic elements and start judging them by their actions. Now you are free to compare. In such a state of being, there is only room for learning and improvement, not ego -quite literally.
In conclusion, it is rightfully said that one’s greatest enemy is himself. Because the identity of himself is exposed by one’s ego. When there is no such thing, he becomes harmless to himself. Any mental pain that you encounter in your life is a result of constantly thinking of materialistic aspects of your life. When they are neglected, whatever the point you are in your life materially does not matter. You have achieved success regardless of your physical state of being.
Powerful entities have existed, reigned, and corroded with time. From men to organizations to countries and alliances, there always has been a power differential in the world. The kings and queens have been seen as a symbol of power at more than one point during history. In this day and age where we cherish democracies, should we still be clinging on to our past perceptions?
The question is relevant in an increasingly nationalistic world where leaders that try to act like powerful emperors are elected to power. Taking no names, anybody with a sufficient understanding of global politics will agree. The purpose of a democracy is to cut down on dictatorial rulers. The purpose of democracy was to have an equal rule of law. But why are dictatorial people still elected to power? The simple answer is propaganda but why it works needs to be investigated.
People tend to think that those who rule like a king or a queen is powerful. If I am powerful, I don’t need to dictate my powers. Those who need to abuse power to stay in power are not powerful, they are cowards. Those who thug around the media and force them to shut up, they are not powerful, they are cowards. But somehow, the world have them mixed up.
Someone that can shut up the media, someone who filters the free press are seen as symbol of power. And this is killing it for everyone in the world. This wrongful perception of who is powerful allows dictatorial and nationalistic people to come into power and get away with their autocracies. This is happening across the globe on multitude of democracies. This isn’t as if all the authoritarian regimes isn’t causing plenty of troubles for themselves already.
This post coming up at the time of Covid19 can feel a little cranky. However I without a doubt think that such nationalistic regimes are partially responsible for the spread of the virus. In the western world, leaders not adhering to the lock-down policy is strangely (or not so) seen powerful by a group of people. Now that sounds very familiar with ways which typical nationalistic leaders get elected to power.
Lack of individuality
Nationalism perhaps maybe directly attributed to lack of individuality. Vice versa could also be potentially true as nationalism can cause a drop in individual qualities. The power of judgement is void in absolute nationalistic people. Their government and their army is always right. They don’t have the mental endurance to think otherwise. This can be made possible by shear propaganda.
A patriot is someone that is willing to criticize the authority for its mistakes. A patriot will appreciate the authority for its good deeds. A patriot puts the country in the right direction and don’t just feed on whatever the country does. A patriot has individuality and character. A patriot has judgment.
You as responsible citizens are to keep the rule of law applicable for everyone including the authorities. The authorities makes sure that the rule of law is kept among the citizens. But who keeps the same check on the authority? It’s must be the people. At least the once in the democracies.
This is where the nationalistic bunch causes a lot of trouble. Authorities do their part of the job, or maybe perhaps they even become dictatorial. The nationalistic bunch is blinded to this fact. For them, its a display of power, pride, and prejudice. This is the wrongful perception of power that make a sheep’s dream come true. More or less, the world is increasingly being filled with sheep at this point in time.
I don’t blame propaganda, I blame you
Why is large groups of educated people easily manipulated by propaganda? This stems from the wrongful perceptions as I appropriately began the article with. With all the things that have happened in this world, if you still think the kings/queens/dictatorial rulers are powerful and not think the cowards they actually are, then I myself pity on you.
What is powerful needs to be reevaluated in to the modern world. People that can rant their mouth out on the journalists or frighten them so they remain silent are not powerful. People that exercise their power to force things to happen in their favor is not powerful. People that send young people to die and take credit for their accomplishments are not powerful. They are what they are, the c-word.
Investment versus Speculation: Results to Be Expected by the Intelligent Investor
Chapter 1 is what it’s heading suggest it to be. Part of chapter one was already explained in the introduction which laid down the basics. Chapter 1 goes into the details of what constitutes investment or speculation. It also goes into detail deconstructing the difference and therefore the accompanying results for a defensive and aggressive investor. So to keep it simple, chapter 1 is divided to three sections.
Investment versus Speculation
Results to Be Expected by the Defensive Investor
Results to Be Expected by the Aggressive Investor
Technical words included:
Selling short: You borrow stock from someone else. You sell them for the price you received and buy them back at a lower price.
If you know Graham close and his disciple (Buffet), there is one thing they always warn you about and it is the dangers of speculation. Speculation, as opposed to investment, is a completely different activity and people, the media and the wall street itself always tend to mix them, disastrously so.
“An investment operation is one which, upon thorough analysis promises safety of principal and an adequate return. Operations not meeting these requirements are speculative.”
The book details how the meaning of the word “investor” has changed over time. This is hardened with the fact that anyone who buys or sells security is called an “investor” by the wall street. Graham observes that the distinction between investor and speculator is a useful one and its disappearance is a cause of concern.
The author urges Wall Street to put forth this concern and make the distinction clear. Graham goes on to warn about huge speculative losses that people will have to deal with due to lack of awareness. Some stock markets themselves included speculative stocks on their capital and results weren’t good.
As per Graham, intelligent speculation exists just like intelligent investing does. However few things can make speculation go wrong.
Speculating when you think you are investing.
Speculating seriously instead of as a pastime, when you lack proper knowledge and skill for it.
Risking more money in speculation than you can afford to lose.
Graham here by laid the solid foundation to call any nonprofessional who is putting money in the stock market is speculating and not investing. These are people that go after hot common stocks expecting a quick fat return. The problem with the same people is that when you average their stock market earning over the long term, speculation will prove to be a zero-sum game.
Although I wanted to keep this series clean of Jason Zweig’s commentary, I am quoting one line that is way more powerful than the entire paragraphs of text you read in the book or this series.
“People who invest make money for themselves; people who speculate make money for their brokers.”
Jason Zweig on TII
Results to Be Expected by the Defensive Investor
The introduction section of the book has already described a defensive investor as one interested chiefly in safety plus freedom from bother. To derive an appropriate policy for the defensive investor, Graham would want to consider what he recommended 6 years ago (1965) and compare the changed market conditions to 1971- early 1972.
6 years ago (1965), Graham recommended “the proportion held in bonds be never less than 25% or more than 75%”. An easy pick would be to keep a 50-50 share between the two. The investor can alter his bond/stock holding according to the market keeping the 25-75% margin.
Graham then goes on to describe his learning from 1965 to early 1972 (book published in 1973) to which changes in the market, especially high-interest rates for bonds are indicating a different idea. At one point, the 25-75 split was put under suspicion because the high returns from bonds suggested a 100% capital allocation. In early 1972, both bonds and stocks were giving fair returns hence Graham’s idea of 25-75 splitting remains invincible.
Policy for a defensive investor
The defensive investor must confine himself to the shares of important companies with a long record of profitable operations and in strong financial condition.
Purchasing shares of well-established investment funds as opposed to creating his own common-stock portfolio.
Finding and investing in common trust funds. (if possible, use a recognized investment-counsel firm.)
Utilize the method of dollar-cost averaging.
Results to Be Expected by the Aggressive Investor
The aggressive investor is looking to make more money than the defensive one but first, he should make sure he is not loosing all of it. Graham considers few ways in which investors/speculators attempt to make money.
Trading in the market: Purchasing stocks by how they are “behaving”.
Short term selectivity: Purchasing stocks showing the prospects of short term profit.
Long term selectivity: Buying stocks with excellent past records or investing in promising future technologies.
However, most promising stocks can have two problems -human error and the nature of competition. Human error at least from the investor side can be brought to a minimum with a great deal of knowledge and skill. The nature of competition is an obvious fact and it is well understood from the airlines’ example in the introduction section.
Hereon, Graham suggests that the investor must follow policies which are (1) inherently sound and promising, and (2) not popular on Wall Street.
The chapter continues to details through more events and corresponding analysis as applied to aggressive investors. But the above line has concluded them all. If you want to take only one thing away from this chapter, this line is all of it.
Whether you are a defensive investor or an aggressive one, there are stocks that minimize risk and maximize guarantee. However, what Graham told must be kept close to your heart. You must look for adequate performance, not extra ordinary performance.
The Intelligent Investor is a book written by the British-born American investor, economist, and professor Benjamin Graham. It is considered the bible for stock market investing and is recommended by a multitude of investors including most notably Warren Buffet himself. The book first published in 1949 has been updated multiple times and the last original edition was published in 1973 which preface and appendices by Warren Buffett.
Graham died in 1976, however, there are more recent versions of the book with updated commentary by Jason Zweig. The commentary exists mostly to emphasize the relevance of the book in the modern age. As an old book, people might feel that it is outdated. But it has been proved with the time that there is an underlying principle of investment that remains solid over the decades. The same is mentioned in the introduction of the book. This series will ignore the comments from Jason Zweig and focus on the original content itself.
Why this series exist?
The Intelligent Investor has 21 sections. An “Introduction” section along with 20 chapters. It is important to grasp all sections of the book. This series aims to breakdown all the 21 sections one by one. So this post serves both as the introduction of the series as well as break down the introduction section of the book.
The book is supposed to be the beginner-friendly version of his previous work “Security Analysis” however many people find the book hard to understand. Reading it myself, I can say it is an intermediate book but if you want to start learning to invest with TII, you can. It is not impossible to understand, it just takes time.
My ultimate aim with this series is to make it easy for any beginner to understand the book. So I will breakdown the book chapter by chapter and try explaining them to the best of my abilities.
Who is the author of this series?
Since this series will be a long time consuming read you might want to know the qualification of the author. The Intelligent Investor book itself claims to be beginner-friendly however it is easy to get lost in the pool of technical words and jargon in the book. If someone with an economics degree reads this book, it might be very easy to grasp. I am NOT that someone. I don’t have a degree in economics or finance or whatever. I am a bachelor in Mechanical Engineering and my only relation to economics is a mandatory one-semester course on business economics I had to do half-way through the engineering.
That course more or less didn’t make much of an impact as I was still struggling to understand the book as I got sunk in the pool of technical words and jargon. And that is what I want you to know. I am just someone who read each section multiple times, Googled things and learned them from scratch. This is why YOU can understand this book and apply it in your life.
I hope with the aid of this series, you will do it in no time with or without the backdrop of having anything in economics/finance. With that being said, let’s begin the series. I recommend reading the book on parallel with the series.
Introduction: What This Book Expects To Accomplish
So this is the first section of the book and as the title suggests, the author wants to lay down what he wants to accomplish with it. To fully understand the introduction section, you will have to complete the book and read the intro again. For now, let us dive where the introduction is taking us.
Bonds: An individual bond is a piece of a massive loan. When government or large corporates need big loans, they divide them into many pieces each piece making up a single bond. Bonds, as opposed to stocks, have a maturity date by which the principal amount is paid back. Otherwise, the loan defaults. More: https://www.investopedia.com/terms/b/bond.asp In the book “High-grade Bond” just means bonds that are investment-worthy that produce high yield and has a very low chance of defaulting.
Investor: Someone who simply invests in the stock market. (For this book, no confusion with broader meanings of the term.)
Speculators/Traders: These are not the same people but in this book, they create the same problem. Speculators give out feeds just by looking at some market symbols and traders buy and sell following them.
Dow Jones Industrial Average: DJIA is a number that is used to indicate the health of the economy. It is calculated by picking the 30 biggest companies in the stock market. The logic is that if these 30 companies are doing well, the entire economy is doing well. The 30 companies are not fixed and change over time. Higher the DJIA, better the economy. Best explained in this video: https://www.youtube.com/watch?v=xCOFepwuz-Q
Dollar-cost averaging: Easily explained in this less than 2-minute video.
Tangible-asset value: “Tangible” – the one that you can physically see/touch. The Tangible-asset value of a company is simply the value of the company’s physical properties (real estate, machinery, etc.) and financial balance. Goodwill, patents, copyrights are not included in the Tangible-asset value.
The purpose of this book is to supply, in a form suitable for laymen, guidance in the adoption and execution of an investment policy. Comparatively little will be said here about the technique of analyzing securities; attention will be paid chiefly to investment principles and investors’ attitudes.
– Benjamin Graham, The Intelligent Investor
The actual content of the book starts with this couple of lines. These two lines are beautiful as I think it neatly describes what the book is about and to whom it is written. It isn’t written for experts, it is written for anyone and everyone.
The book walks you through so many things intending to make you understand that your attitude as an investor is way above your knowledge and intellectual capacity. That is the number one thing you need to take away from this book. The author goes on to describe the attitude and other know-hows throughout the book as we will see in the coming chapters.
Benjamin is on to the point in explaining things with quotes that are easy to keep in mind.
“Those who do not remember the past are condemned to repeat it.” – The words of George Santayana repeated in the book as Benjamin explains how financial history is an important subject in investment. The book is based on decades of financial history that you need to learn as you will be deemed to encounter something similar in your future.
The introduction section then goes on to draw a line between speculators (traders) and investors. This is well done by picking an example from John J. Raskob who proposed a theory on how savings of just 15 USD per month invested – with dividends reinvested – in common stocks can earn 80,000 USD in 20 years. I was surprised and taken by that theory as well until the book deconstructs its actual feasibility by theoretically estimating it. They found the value is way lower and could be even negative after adjusting for inflation. The purpose of this deconstruction was to show how optimistic forecasts from speculators like this can go wrong and go wrong wildly.
The book hereby draws the line between speculators/traders and investors. The other category (non-investors) are just looking at a graph and seeing things as either up and down. They just buy and sell stocks without understanding them. It’s an action completely based on some numbers and mechanical means. It is mostly controlled by sudden bursts of emotion. This is something you want to avoid and choose to be The Intelligent Investor instead.
The book then goes on to explain its history. Since the original release in 1949, the economy has gone through numerous changes and the book was updated accordingly. The last version of the book released in 1973 had to accommodate for plentiful of changes as described in the book itself. It is mentioned to emphasize the point that the underlying principles of investment remain the same over the decades.
Now the book takes us to two different kinds of investors -defensive (passive) or enterprise (active/aggressive).
“The defensive (or passive) investor will place his chief emphasis on the avoidance of serious mistakes or losses. His second aim will be freedom from effort, annoyance, and the need for making frequent decisions. The determining trait of the enterprising (or active, or aggressive) investor is his willingness to devote time and care to the selection of securities that are both sound and more attractive than the average.” – Benjamin Graham, The Intelligent Investor.
It is sounded obvious that an active investor will earn more over time compared to the passive one. The book is not vouching for one or the another and is written for both of them.
This is more important coming to where the book takes us next. Graham sights an example of investments in the airline industry. It is obvious that back in 1940, the airline industry made as much excitement as internet stocks made the previous three decades. The idea was simple, the number of air passengers will grow in the coming decades. The numbers will triple/quadruple and hence airline industry is one of the best to invest in. While the “speculation” that there will be an enormous increase in airline passengers was true to the last bit, the idea that one should invest in airline stocks because of it turned out to be miserable.
Those who invested in airline industries suffered a huge loss even when the industry grew in size and demand for air travel sky rocketed. This is again to emphasize why speculation shouldn’t be confused with investment even if they are obvious.
Those who jumped to buy the airline stocks because of its obvious prospects maybe the “aggressive” investors. The book shares two morals from this.
Obvious prospects for physical growth in a business do not translate into obvious profits for investors.
The experts do not have dependable ways of selecting and concentrating on the most promising companies in the most promising industries.
With this, the author debunks the idea that an ever-growing industry with ever-growing companies in them may no always be the ideal investment destination. To this day, it is agreed that the airline industry as a whole has collective negative returns. There is something more than what meets the eye.
The next paragraph(s) is written on how investors attitude is the key to success. Investments like the one mentioned in the airline industry come from excitement and temptations. You the intelligent investor shall not be deceived by such temptations and are expected to show patience and restraint.
“The habit of relating what is paid to what is being offered is an invaluable trait in investment.” The author writes as a means to emphasize the need to calculate the intrinsic value of a stock first.
The rest of the introduction section spends its time debunking the speculative approach and its pitfalls. The book in the coming chapters will take you more through the pitfalls associated as it recommends a “Margin of safety” approach towards investment.
Next: The Intelligent Investor breakdown series: CHAPTER 1 (Coming soon)