Session 1

In this book, attention will be paid more to investment principles and investors’ attitude than to the technique of analyzing securities
Since our book is not addressed to speculators, it is not meant for those who trade in the market. Most of these people are guided by charts or other largely mechanical means of determining the right moments to buy and sell. The one principle that applies to nearly all these so-called “technical approaches” is that one should buy because a stock or the market has gone up and one should sell because it has declined. This is the exact opposite of sound business sense everywhere else, and it is most unlikely that it can lead to lasting success on Wall Street. In our own stock-market experience and observation, extending over 50 years, we have not known a single person who has consistently or lastingly made money by thus “following the market.” We do not hesitate to declare that this approach is as fallacious as it is popular.
It has long been the prevalent view that the art of successful investment lies first in the choice of those industries that are more likely to grow in the future and then in identifying the most promising companies in these industries.
During 2k bubble burst, all those so-called experts ignored Graham’s sober words of warning, “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.
We have seen much more money made and kept by “ordinary people” who were temperamentally well suited for the investment process than by those who lacked this quality, even though they had an extensive knowledge of finance, accounting, and stock market lore.

Commentary by Jason Zweig

For Benjamin Graham, an “intelligent investor” means being patient, disciplined, and eager to learn; you must also be able to harness your emotions and think for yourself.
Back in the spring of 1720, Sir Isaac Newton owned shares in the South Sea Company, the hottest stock in England. Sensing that the market was getting out of hand, the great physicist muttered that he “could calculate the motions of the heavenly bodies, but not the madness of the people.” Newton dumped his South Sea shares, pocketing a 100% profit totaling £7,000. But just months later, swept up in the wild enthusiasm of the market, Newton jumped back in at a much higher price—and lost £20,000 (or more than $3 million in today’s money). For the rest of his life, he forbade anyone to speak the words “South Sea” in his presence.
While it seems easy to foresee which industry will grow the fastest, that foresight has no real value if most other investors are already expecting the same thing. By the time everyone decides that a given industry is “obviously” the best one to invest in, the prices of its stocks have been bid up so high that its future returns have nowhere to go but down.
The intelligent investor realizes that stocks become more risky, not less, as their prices rise – and less risky, not more, as their prices fall. The intelligent investor dreads a bull market, since it makes stocks more costly to buy. Conversely, you should welcome a bear market, since it puts stocks back on sale.
The death of the bull market is not the bad news everyone believes it to be. Thanks to the decline in stock prices, now is a considerable safer – and saner – time to be building wealth.