The Intelligent Investor

"Investment is most intelligent when it is most businesslike."

— Benjamin Graham, The Intelligent Investor (1949)

Introduction

The Intelligent Investor
Full title	The Intelligent Investor: A Book of Practical Counsel
Author	Benjamin Graham
Language	English
Subject	Value investing; Investment
Genre	Nonfiction; Finance
Publisher	Harper & Brothers
Publication date	1949
Publication place	United States
Media type	Print (hardcover, paperback); e-book; audiobook
Pages	276
ISBN	978-0-06-055566-5
Goodreads rating	4.2/5  (as of 10 November 2025)
Website	harpercollins.com

The Intelligent Investor is Benjamin Graham’s 1949 guide to value investing, written to help ordinary investors pursue disciplined, long-term results rather than speculation. The book distinguishes between “defensive” and “enterprising” investors, frames market swings with the “Mr. Market” allegory, and makes “margin of safety” its central rule. In the revised and annotated edition, Wall Street Journal columnist Jason Zweig adds chapter-by-chapter commentary alongside a preface by Warren E. Buffett. HarperCollins’ 75th-anniversary Third Edition retains Graham’s original text and presents updated commentary, released on 22 October 2024. Its reach has been broad: Fortune reported in 2021 that the book “has sold millions of copies,” and the publisher highlights Warren Buffett’s line that it is “by far the best book about investing ever written.”

Chapters

Chapter 1 – Investment versus Speculation: Results to Be Expected by the Intelligent Investor

🧭 In 1948, a nationwide survey conducted for the Federal Reserve by the University of Michigan found that more than nine in ten respondents rejected buying common stocks, often deeming them unsafe or unfamiliar; within a generation, headlines swung from a 1962 front-page warning about “small investors” selling short to a 1970 editorial chiding “reckless investors” for rushing to buy. I restore a clear boundary by defining investment in objective terms and treating all other market activity as speculation. Because common stocks always contain a speculative element, the practical task is to confine it and to be prepared, financially and psychologically, for adverse results that can last for years. For the nonprofessional, workable policy is defensive: hold high-grade bonds and leading equities in broad balance, shun hot offerings, and favor simple devices like dollar-cost averaging over trading. A neutral 50–50 split, or a band that lets stocks range from 25% to 75% with shifts opposite the market, keeps risk in check without pretending to forecast. Enterprising investors who seek more must accept that popular tactics—market timing, short-term selectivity, or paying up for glamour growth—rarely beat a field whose expectations are already in prices. Distinguish investing from speculation by objective standards, and accept that crowd opinion and luck cannot be managed; a rule-based, balanced portfolio that is replenished at lower prices channels effort into analysis, leaves little room for impulse, and builds a margin of safety over time. An investment operation is one which, upon thorough analysis promises safety of principal and an adequate return.

Chapter 2 – The Investor and Inflation

🌡️ A long table of U.S. price, earnings, and stock-price data from 1915 to 1970 shows inflation arriving in waves: the cost of living nearly doubled between 1915 and 1920, then alternated between deflationary stretches and modest rises across the next half-century. Over the prior two decades consumer prices rose roughly 2.5% a year, quickening to about 4.5% from 1965 to 1970 and 5.4% in 1970, so a prudent working assumption is on the order of 3% going forward. At that pace, rising prices would absorb about half the income on good medium-term bonds, yet an investor who spends only half the interest can preserve purchasing power. I test the popular claim that common stocks automatically hedge inflation, noting that five-year spans exist in which stocks lag rising prices and that both General Electric and the Dow took roughly 25 years to regain their 1929–1932 losses. Gold, while a familiar refuge elsewhere, offered little protection in the United States from 1935 to early 1972, creeping from about $35 to $48 an ounce while paying no income and imposing storage costs. Real estate and collectibles can surge but are illiquid, concentrated, and prone to speculative mispricing—hardly a systematic defense for ordinary investors. I return to balance: avoid putting everything in either the bond basket, despite high yields, or the stock basket, despite inflation fears; hold some of each and accept that neither perfectly hedges the other. Inflation is an unpredictable headwind that can turn nominal gains into real losses, so diversify exposures and manage spending to preserve buying power by anchoring a permanent stock component for growth with a bond component for stability. It is axiomatic that the conservative investor should seek to minimize his risks.

Chapter 3 – A Century of Stock-Market History: The Level of Stock Prices in Early 1972

🗓️ Using Cowles Commission research spliced into Standard & Poor’s composite, I map nineteen major bull-and-bear cycles from 1871 to 1971 and the shifting relationships among prices, earnings, and dividends. The record falls into three broad eras: relatively regular 1900–1924 cycles with roughly 3% annual gains; the “New Era” boom culminating in 1929 and its long aftermath; and the post-1949 advance that lifted the Dow from 162 to 995 by early 1966. After setbacks in 1956–1957 and 1961–1962, the market peaked again in 1968, fell into a 1970 low, and then rallied to fresh highs for the industrials by early 1972. On three-year average earnings, late-1971 valuations were not extreme, but the comparison that matters turned against equities: the earnings yield relative to high-grade bond yields was worse than in earlier years. Dividend yields told the same story in reverse of 1948—stocks had once yielded roughly twice bonds; by 1972, bonds yielded roughly twice stocks. At about 900 on the Dow, that context made the level unattractive for conservative buyers, regardless of whether the next move was another rally or a replay of 1969–1970. Expected returns emerge from starting valuations and yields, not from wishful projections of past averages; treat valuation as a risk signal, and keep the stock–bond mix within disciplined bounds to restrain extrapolation and keep the portfolio resilient to the next cycle. Our final judgment is that the adverse change in the bond-yield/stock-yield ratio fully offsets the better price/earnings ratio for late 1971, based on the 3-year earnings figures.

Chapter 4 – General Portfolio Policy: The Defensive Investor

🛡️ Yale University followed a formula plan for years after 1937 built around a 35% “normal” stock position, but by 1969 it—like 71 surveyed endowments totaling $7.6 billion—held roughly 60% in equities, a reminder of how bull markets push institutions off their moorings. To keep individuals from drifting the same way, I define a defensive policy: divide between high-grade bonds and high-grade common stocks, and let neither holding drop below 25% nor exceed 75%. The standard split is 50–50; as prices move, restore balance mechanically—trim stocks when they reach about 55% and add when they slip to about 45%, shifting one-eleventh of the portfolio each time. Such a plan asks for intelligence in design, not constant prediction; the return you should seek depends on the effort you can apply, not on how much excitement you can stomach. At levels that feel dangerously high, lighten the equity share; at depressed levels, add—recognizing that human nature tempts most people to do the opposite. Defensive holdings should be confined to leading, conservatively financed companies or to investment funds that track them, with changes infrequent and purposeful. Embed caution in structure so emotions never dominate policy, and use simple countercyclical rebalancing to sell exuberance and buy fear. We have suggested as a fundamental guiding rule that the investor should never have less than 25% or more than 75% of his funds in common stocks, with a consequent inverse range of between 75% and 25% in bonds.

Chapter 5 – The Defensive Investor and Common Stocks

📊 Lucile Tomlinson’s comprehensive study of formula investment plans tested the Dow Jones industrial stocks across 23 ten-year purchase periods, from one ending in 1929 to another ending in 1952, and found that every test showed a profit by the close of the buying window or within five years, with an average indicated gain of 21.5% excluding dividends. Against that evidence for steady accumulation, stocks still require price discipline: after 1929’s peak at 381.17 on the Dow, investors waited until 23 November 1954 for a close above that level, reminding anyone who buys at extremes how long “the long run” can be. Common stocks earn their place by outpacing inflation and delivering higher average returns over time, but those advantages evaporate when the price is too high. For restraint, a defensive buyer limits valuation—no more than 25 times average earnings over seven years and no more than 20 times the last twelve months—rather than chasing “growth” defined as doubling earnings in roughly a decade. A practical tool is dollar-cost averaging, institutionalized by the New York Stock Exchange’s monthly purchase plan, which prevents concentrating purchases at bad moments. Graham illustrates policy through concrete cases: a widow living from a $200,000 estate, a doctor with $100,000 in savings adding $10,000 a year, and a young wage earner saving $1,000 annually—all better served by a simple mix of U.S. bonds and first-grade stocks than by speculation. Stocks should be added selectively when income needs and valuations align, not merely because they have risen. Let dividends and intrinsic value do the work while you refuse to overpay; systematic buying and valuation caps leave room for error. The monthly amount may be small, but the results after 20 or more years can be impressive and important to the saver.

Chapter 6 – Portfolio Policy for the Enterprising Investor: Negative Approach

⛔ A cautionary exhibit comes from ten railroad income bonds sold near par in 1946—average highs around 102½—only to trade a year later at average lows near 68, a one-third drop that swamped their mere 1.75-point yield advantage over first-grade bonds (about 4.25% versus 2.50%). Second-grade bonds and preferreds show this pattern repeatedly: modest extra income up front, disproportionate price damage in weak markets, and frequent dividend or interest suspensions. Foreign government bonds supply harsher lessons—Republic of Cuba 4½s, offered as high as 117 in 1953, defaulted and sold near 20 cents on the dollar in 1963; Czechoslovakia’s 8% issue, first offered in 1922 at 96½, ran from 112 (1928) to 6 (1939), back to 117 (1946), then down to 8 (1970). New issues warrant special skepticism: heavy salesmanship meets “favorable market conditions,” which means favorable to issuers; cycles like 1945–46, May 1962, and 1967–1969 show how flotations proliferate near peaks and then collapse. Even when a few IPOs soar on day one, the class record after the party is bleak. The enterprising investor gains advantage not by adding exotica, but by declining inferior credits, foreign sovereigns, and temptingly timed issue calendars. Subtract what historically destroys capital, and accept that patience beats novelty; recognize the seller’s timing, resist promotion, and demand price concessions and proven earning protection before buying anything off the beaten path. For every dollar you make in this way you will be lucky if you end up by losing only two.

Chapter 7 – Portfolio Policy for the Enterprising Investor: The Positive Side

✅ Drexel & Company (Philadelphia) ran 34 one-year tests from 1937 to 1969, annually buying the ten lowest-multiplier (cheapest) stocks in the Dow Jones Industrial Average; the “low-P/E” basket beat the Dow in 25 of the 34 years, and $10,000 compounded under this rule from 1936 grew to roughly $66,900 versus $25,300 for the high-multiplier group. Graham then turns from style labels to verifiable bargains: issues selling below their conservatively appraised worth, with a suggested margin of at least 50% between value and price. The most clear-cut cases are “net-current-asset” stocks—companies priced below working capital net of all liabilities; buying one share of each of 85 such issues listed in Standard & Poor’s Monthly Stock Guide at year-end 1957 and holding through 1959 produced a 75% aggregate gain versus 50% for S&P’s 425 industrials, with no significant individual losses and 78 appreciable advances. He also details secondary companies that the market discounts too far relative to their size, stability, and assets, and “Special situations” or workouts—mergers, liquidations, and reorganizations—where terms and timelines can be analyzed. Across these avenues, the common thread is quantitative support plus going where fewer investors look. The practical policy is to hunt unpopular large companies at low multiples, buy true bargains (especially below net working capital), and selectively pursue special situations, using simple, testable criteria that depart from the crowd while preserving a margin of safety. To obtain better than average investment results over a long pull requires a policy of selection or operation possessing a twofold merit: (1) It must meet objective or rational tests of underlying soundness; and (2) it must be different from the policy followed by most investors or speculators.

Chapter 8 – The Investor and Market Fluctuations

🎢 Picture owning a $1,000 stake in a private firm with a partner named Mr. Market who, every day, quotes a buy-or-sell price based on his latest mood—sometimes sensible, often “a little short of silly.” Liquidity gives you the option to act at his number, not the obligation to accept his judgment; your task is to value the business from operations and balance sheets, not from his enthusiasms and fears. Forecasts and “signals” can entice, but their hit-rate is no better than chance, and the investor’s advantage lies in choosing when to ignore them. Market movements matter only because they create low price levels at which buying is wise and high levels where buying should cease and selling may be prudent. Investors who treat themselves as minority owners of businesses, not traders of quotes, can invert volatility from hazard into help through rebalancing and disciplined buying. Treat prices as information, not instruction—make Mr. Market your servant, not your master—and act only when price and value align, with attention on dividends and operating results. They provide him with an opportunity to buy wisely when prices fall sharply and to sell wisely when they advance a great deal.

Chapter 9 – Investing in Investment Funds

🧺 Manhattan Fund, Inc., organized at the end of 1965, floated 27 million shares at $9.25–$10 and began with $247 million to chase capital gains; in 1967 it rose 38.6% against 23.0% for the S&P composite, then stumbled with losses in 1968–1970 as two of its largest positions went bankrupt within six months and a third faced creditors’ actions in 1971. Graham notes how “performance” managers, mostly young and tested only by 1948–1968’s long bull market, poured money into high-multiple, low-dividend glamour issues, producing brief brilliance that ended badly. He widens the lens with ten large stock funds over 1961–1970, showing that past “winners” sometimes carry momentum—but warns that when markets surge, impressive records can come from unorthodox risk. Against promotion and fashion he sets structure and arithmetic: Closed-end funds typically trade at discounts, while Open-end funds impose sales loads and fees that compound against the buyer. A simple example compares paying 109% of net asset value for a Load fund to buying a closed-end fund at 85% plus modest commission; the discount would have to widen to roughly 27% before the closed-end buyer merely tied the open-end result. The practical counsel is to avoid star-manager cults, prefer sober policies, and, if using funds, consider closed-end shares bought at 10%–15% below assets or low-cost options that do not depend on perpetual outperformance. Treat funds as ordinary businesses whose returns gravitate toward the market average less expenses and timing mistakes, and keep costs, structure, and behavior aligned with value rather than with headlines. It is part of the armament of the intelligent investor to know about these “Extraordinary Popular Delusions,” and to keep as far away from them as possible.

Chapter 10 – The Investor and His Advisers

🧑‍💼 In late 1971, with several brokerage houses under strain, a prudent account settles trades “against payment” through a bank and treats custody as a safety function—better safe than sorry until the system’s problems are cleared. From there the landscape divides: investment-counsel firms sell professional administration; financial “services” sell information; brokerage houses serve “customers” yet aspire to a professional “client” standard; and investment bankers bring new issues to market, deserving attention but never blind trust. He sketches what real analysis looks like inside those institutions—the security analyst who compares issues, weighs safety, and estimates intrinsic value—and welcomes the C.F.A. designation as a step toward higher standards. Fees and roles matter: if advice is the primary input, portfolios should remain standard and conservative; unconventional ideas require the owner’s own skill to judge them case by case. Trust departments, counsel firms, and brokerage research can be useful, but conflicts and sales incentives mean the investor must bring independent judgment or hire it explicitly. Make advice serve policy, not replace it: define what the portfolio will and will not do, control custody and costs, and accept only recommendations you can verify or competently delegate. Our basic thesis is this: If the investor is to rely chiefly on the advice of others in handling his funds, then either he must limit himself and his advisers strictly to standard, conservative, and even unimaginative forms of investment, or he must have an unusually intimate and favorable knowledge of the person who is going to direct his funds into other channels.

Chapter 11 – Security Analysis for the Lay Investor: General Approach

🔎 A compact study ties price to expectation: using the simplified growth formula Value = current “normal” earnings × (8.5 + 2g), the DJIA’s 1963 multiple implied roughly 5.1% growth (near its subsequent rate), while names like Xerox and IBM embedded far higher rates—illustrating how quickly valuation leans on prophecy. Tables compare 1963 and 1969 P/Es to realized earnings, showing how chemical companies with lofty multipliers then stagnated, while oil companies later roughly matched the growth implied by their earlier valuations. For the nonprofessional, Graham reduces the craft to essentials: read reports, test financial position and capital structure, and prize a continuous 20-year dividend record as a practical signal of quality. Industry studies are useful only when they uncover what the market has not already priced; most forecasts reflect consensus fashion, not durable edge. He cautions that growth estimates above modest rates are hostage to small errors and to interest-rate moves that shrink the present value of distant cash flows. Focus appraisal on what can be measured and cross-checked, not on wishful extensions of recent success; apply a two-part filter—soundness first (balance sheet, coverage, dividends), then restrained valuation—so assumptions, not excitement, drive the price you will pay. There is really no way of valuing a high-growth company (with an expected rate above, say, 8% annually), in which the analyst can make realistic assumptions of both the proper multiplier for the current earnings and the expectable multiplier for the future earnings.

Chapter 12 – Things to Consider About Per-Share Earnings

🧮 A Wall Street Journal report on ALCOA’s 1970 results demonstrates how a single year can mislead: “primary” earnings were $5.20 per share, but “net income” after special charges was $4.32; on a fully diluted basis the figures fell to $5.01 and $4.19, and the December quarter’s $1.58 shrank to $0.70 once the charges were included. At a stock price of 62, a hasty reader might infer a sub-10× P/E from the quarterly run rate, while careful footnote work shows something closer to 22×—a very different proposition. Graham dissects the dilution from convertibles and Warrants, the proliferation of “special” or “nonrecurring” items that recur, and the tax-credit alchemy that can make future earnings look larger by shifting losses into the present. He shows how “primary” versus “fully diluted” earnings can diverge widely and how timing of write-offs can paint sunshine while hiding the clouds behind it. The remedy is to treat per-share figures as a starting point, not a verdict, and to reconcile them to the underlying economics of the business across a full cycle. Retrain attention from quarterly optics to normalized earning power by reading footnotes, adjusting for dilution and accounting artifices, and insisting on multi-year context before translating EPS into value. Don’t take a single year’s earnings seriously.

Chapter 13 – A Comparison of Four Listed Companies

⚖️ I present a live case study by lifting four adjacent names from the New York Stock Exchange list at year-end 1970—ELTRA Corp. (formed from Electric Autolite and Mergenthaler Linotype), Emerson Electric Co., Emery Air Freight, and Emhart Corp.—and laying their numbers side by side. Prices, shares outstanding, and sales are concrete: Emerson’s market value topped roughly $1.6 billion against ELTRA’s $208 million and Emhart’s $160 million, while Emery, a domestic air-freight forwarder, stood near $220 million. The telling contrast is not in balance-sheet weakness but in valuation: on the 1968–1970 average, ELTRA and Emhart sold near 9.7× and 11.7× earnings with Price-to-book of about 1.0×–1.2×, whereas Emerson and Emery fetched roughly 33× and 45× with price-to-book near 6.4× and 14.3×. Dividend history and stability weigh heavily: Emhart has not missed a payment since 1902, and both the “cheap pair” showed only modest earnings dips in 1970. I adjust for dilution where it matters—Emerson carried low-dividend convertible preferred with market value around $163 million—and note that Current ratios and debt were generally sound. The long record of price swings underscores market enthusiasm: from 1936–1968, Emhart rose roughly 17-to-1 from low to high, while Emery’s spread was about 528-to-1. On these facts I judge which names meet the seven statistical requirements for a defensive investor—adequate size, strong finances, an unbroken dividend record, no deficits, reasonable growth, and moderate ratios of price to earnings and to assets—then warn against paying any price for recent growth. Comparable operating strength can command wildly different prices because the market often capitalizes fashion, not fundamentals; insist on earnings power backed by assets and dividends, and refuse to justify extreme multiples with popularity. Under our principles of conservative investment the first is not a valid reason for selection—that is something for the speculators to play around with.

Chapter 14 – Stock Selection for the Defensive Investor

🧱 I offer two practical paths. One is the “DJIA-type” cross-section: buy equal amounts of the leading industrials—thirty stocks will do—and achieve the market’s results at low effort and cost. The other is a quantitatively tested list that any careful reader can build by enforcing seven filters: minimum enterprise size (roughly $100 million of sales for industrials or $50 million of assets for utilities), strong Current ratio near 2:1 and modest long-term debt, at least ten years of positive earnings, at least twenty years of uninterrupted dividends, a decade of earnings growth of one-third or better (using three-year averages), a current price no higher than 15× the past three-year average earnings, and a price no higher than 1.5× Book value—or, equivalently, a P/E times P/B not exceeding 22.5. Applied to conditions at the end of 1970, the Dow names as a group met these rules, if a few only barely; issues like American Telephone & Telegraph at roughly 11× and Standard Oil of California at under 10× earnings illustrate the ceiling I set. The aim is a portfolio whose earnings yield, on purchase, is at least as high as prevailing yields on high-grade bonds. This is a discipline of exclusion more than discovery: it screens out the too small, the too weak, the erratic, and the overpriced. Buy quality at sensible multiples and accept that “good enough” often beats the hunt for the perfect growth story. Our basic recommendation is that the stock portfolio, when acquired, should have an overall earnings/price ratio—the reverse of the P/E ratio—at least as high as the current high-grade bond rate.

Chapter 15 – Stock Selection for the Enterprising Investor

🚀 I begin with independent evidence on what “skill” delivers: the Friend-Blume-Crockett study (McGraw-Hill, 1970) examined January 1960–June 1968 and found that equal-weighted random portfolios of NYSE stocks outperformed mutual funds in the same risk class by about 3.7% per year in low-risk and 2.5% in medium-risk categories (only 0.2% in high-risk)—a sober reminder that beating the averages is hard even for professionals. Against that backdrop, I lay out workable edges the industrious reader can pursue: comb the Stock Guide for low-multiplier industrials (under roughly 10×), then tighten the net with six additional tests akin to, but milder than, the defensive rules—sound liquidity (current assets at least 1.5× current liabilities), debt no more than 110% of net current assets, and the like—until a diversified list of 15 names emerges. I also revive a long-proven hunting ground: bargain “net-current-asset” stocks available below working capital less all liabilities; after the 1970 break, about fifty such issues appeared, including well-known brands like Cone Mills, Jantzen, National Presto, Parker Pen, and West Point Pepperell. Finally, I sketch three live “workouts” from late 1970–early 1971—Borden’s proposed stock-for-stock purchase of Kayser-Roth, National Biscuit’s cash offer for Aurora Plastics, and the liquidation of Universal-Marion—to show how controlled Arbitrage, done across many cases, can yield 20%-type annualized returns when consummations and time frames cooperate. Insist on a margin of safety, diversify across many small advantages, and let time rather than forecasting power do the heavy lifting; low multiples, excess working capital, and event-driven spreads are systematic mispricings a patient investor can capture. Yes indeed, if you can find enough of them to make a diversified group, and if you don’t lose patience if they fail to advance soon after you buy them.

Chapter 16 – Convertible Issues and Warrants

🔄 I open with facts on their growing prominence: by 1968–1970 more than half the preferreds in Standard & Poor’s guide carried conversion privileges, and in 1970 the New York Stock Exchange listed long-term Warrants for the first time—rights to buy 31,400,000 American Telephone & Telegraph shares at $52—signaling how far these hybrids had penetrated senior financing. The sales pitch is familiar: a bond’s or Preferred stock’s protection plus the upside of common stock for the buyer; a lower coupon today and equity later for the issuer. Arithmetic cuts through the salesmanship: the conversion privilege usually trades off yield or quality for the buyer, and it surrenders future common-share value for the company; when most issues are sold near bull-market peaks, subsequent declines make the embedded option worth less just when credit risk is rising. History bears it out. Of preferreds offered in 1946, the Convertible preferreds’ average decline to the next low ran near 30% versus about 9% for straight preferreds; in the 1968–1970 sample, convertible preferreds dropped roughly 29% on average, while warrants slid about 33% and common stocks fell much more, with straight preferreds again holding up better. Warrants, in particular, can swell capitalization without adding assets, sometimes valuing the tail above the dog. Treat hybrids as you would any security: weigh coverage, credit, timing, and the fully diluted economics, and do not let the wrapper substitute for an adequate margin of safety; issuers tend to sell option-laden paper when optimism is richest, leaving buyers with neither high income nor true protection. The safest conclusion that can be reached is that convertible issues are like any other form of security, in that their form itself guarantees neither attractiveness nor unattractiveness.

Chapter 17 – Four Extremely Instructive Case Histories

📚 Penn Central, the nation’s largest railroad by assets and gross revenues, filed for bankruptcy in June 1970 after defaulting on most bonds; its common stock collapsed from 86½ in 1968 to 5½ in 1970 despite Interest coverage of only 1.91× in 1967 and 1.98× in 1968—far below the five-times standard for safety—and after paying almost no income taxes for 11 years. The numbers alone signaled danger: in 1969 a holder could have swapped Pennsylvania RR 4½s (range 61–74½) for Pennsylvania Electric 4⅜s (64¼–72¼) without sacrificing price or income, exchanging dubious coverage for utility-grade protection. Ling-Temco-Vought shows the perils of empire-building on debt: sales ballooned from $7 million (1958) to $2.8 billion (1968) as bank loans and convertibles piled up, then staggering losses followed. NVF, with $31 million in sales and $17.4 million in equity at end-1968, offered $70 face of 5% bonds plus warrants for each Sharon Steel share, ultimately issuing $102 million of bonds; “deferred debt expense” of $58.6 million appeared as an asset, while realistic tangible equity shrank to roughly $2.2 million and the new bonds traded near 42 cents on the dollar. AAA Enterprises, floated on “franchising” glamour, reported a modest year-to-date profit in September 1969, then lost $4,365,000 in the next quarter—leaving only $242,000 of capital—yet still ended 1969 at 8⅛ bid before entering bankruptcy in January 1971. Across these cases, superficial “stories,” permissive accounting, and easy credit overwhelmed simple tests of coverage, leverage, asset value, and cash earnings. Sound analysis—swapping weak credits for strong, rejecting acquisitions that invert capital structure, and ignoring promotional fads—anchors the investor to value when markets fixate on momentum. The speculative public is incorrigible.

Chapter 18 – A Comparison of Eight Pairs of Companies

👥 Real Estate Investment Trust (REI), a New England trust with a dividend record back to 1889, kept to prudent mortgages and moderate debt; by late 1968 it traded around 26½ with Book value near $20.85. Realty Equities Corp. of New York (REC) exploded from $6.2 million to $154 million in assets by March 1969, financed with over $100 million of assorted debt, layered preferred stock, and 1.6 million warrants; its stock ran from 10 to 37¼ and its listed warrants from 6 to 36½ on 2.42 million combined shares—even as asset value was only $3.41 per share. In Pair 2, Air Products and Chemicals and Air Reduction—twins in industry and name—show how a lower multiple can outscore fashion over a full cycle. In Pair 3, American Home Products (household and health goods) and American Hospital Supply (medical equipment) reveal the market paying nearly double the earnings multiple for the faster grower at the 1969 peak, only for the favorite’s profits to edge down in 1970 while Home’s rose roughly 8%. Additional pairs repeat the lesson: steady balance sheets, interest coverage, and book value cushion declines; conglomerate structures and financial gimmicks amplify them. When price departs from earnings power and asset backing, temporary popularity often becomes permanent capital loss, while low-multiplier, conservatively financed firms tend to mean-revert upward; a durable margin of safety comes from cash flows, assets, and modest expectations, not complexity. The Real Estate Equities story is a different and a sorry one.

Chapter 19 – Shareholders and Managements: Dividend Policy

💸 After decades of quixotic shareholder passivity, takeovers began bailing out investors in poorly run firms; yet the durable test of stewardship remains what managers do with the owners’ cash. Texas Instruments rose from 5 in 1953 to 256 in 1960 while paying no dividend as earnings climbed from $0.43 to $3.91 per share; when cash dividends began in 1962, earnings had fallen to $2.14 and the stock later sank to 49. Superior Oil shows the opposite extreme: in 1948 it earned $35.26 per share and paid $3, later paying nothing in 1957 while the price reached 2,000 before sliding to 795 by 1962 despite $49.50 of earnings and a $7.50 dividend. Investors treated AT&T’s cash payout as a price driver even at 25× earnings in 1961, while IBM’s microscopic 1960 yield (0.5% at the high; 1.5% at 1970’s close) barely mattered amid growth expectations. Graham distinguishes true stock dividends (a small, earned capitalization of recent reinvested profits) from mere stock splits (a nominal restatement), warning that withholding cash is defensible only when per-share value demonstrably compounds. Dividends are “real money” that force discipline, whereas retained earnings invite agency problems unless they raise per-share earning power; judged over time, payout policy is a practical gauge of alignment and a source of margin of safety. It is our belief that shareholders should demand of their managements either a normal payout of earnings—on the order, say, of two-thirds—or else a clear-cut demonstration that the reinvested profits have produced a satisfactory increase in per-share earnings.

Chapter 20 – “Margin of Safety” as the Central Concept of Investment

🛟 An old maxim—“This too will pass”—frames the three-word rule for sound investing: MARGIN OF SAFETY. For bonds and preferreds, it appears in arithmetic: multi-year earnings covering fixed charges at no less than about five times for railroads, or enterprise value providing a thick cushion above total debt. In common stocks, the same logic applies when prices embed earnings yields comfortably above bond rates, or when a company sells for less than the debt it could safely carry—as in 1932–1933 for many industrials—or when bargain issues trade far below conservatively appraised value. Graham quantifies how a diversified list of twenty or more reasonably priced, representative stocks—purchased around average market levels—creates a cumulative buffer that makes precise forecasting unnecessary. Buying value with a numerical surplus over what can go wrong shifts the odds toward satisfactory results, and broad diversification widens that cushion across independent bets; this separates investing, which rests on figures, reasoning, and experience, from speculation, which rests on predictions without a protective spread. Thus, in sum, we say that to have a true investment there must be present a true margin of safety.

—Note: The above summary follows the HarperBusiness Essentials revised edition (2003; ISBN 0-06-055566-1). Chapter titles reflect the publisher-authorized e-book table of contents. For first-edition bibliographic details (Harper & Brothers, New York, 1949; xii + 276 pp.), see WorldCat.

Background & reception

🖋️ Author & writing. Benjamin Graham—often credited with pioneering value investing—taught at Columbia Business School and co-authored Security Analysis with David Dodd before turning to a broader readership with The Intelligent Investor. The book first appeared with Harper & Brothers in 1949 as a practical guide for lay investors. Graham continued to revise the work, culminating in a Fourth Revised Edition published in 1973 that added a preface by Warren E. Buffett. The modern annotated version leaves Graham’s text intact while adding Jason Zweig’s running commentaries and notes; a 75th-anniversary Third Edition appeared in 2024. Key devices and frameworks—including the defensive/enterprising divide, “Mr. Market,” and the emphasis on margin of safety—anchor the book’s case-led, didactic voice.

📈 Commercial reception. HarperCollins reissued the revised/annotated edition in the mid-2000s, with the U.S. product page listing an on-sale date of 21 February 2006. Fortune reported in 2021 that the book “has sold millions of copies.” To mark its 75th year, HarperCollins released a Third Edition on 22 October 2024. The title also extends into media: when The Wall Street Journal launched Jason Zweig’s personal-finance column in 2008, it explicitly noted that the column “takes its name” from Graham’s book.

👍 Praise. HarperCollins prominently quotes Warren E. Buffett’s endorsement—“By far the best book about investing ever written”—on the book’s anniversary edition page. Bloomberg’s 25 October 2024 weekend review argued that the book remains worth reading 75 years on, emphasizing its behavioral discipline over short-term profit seeking. The Financial Times has likewise recommended Graham’s classic in guidance on how to invest like Warren Buffett.

👎 Criticism. In a 3 November 2024 piece, the The Straits Times noted that parts of the text feel dated and suggested that a strict Graham-style value tilt would have lagged markets over the prior three decades. Broader critiques of Graham-style value investing point to long droughts: The Economist argued in 2020 that value investing has struggled to remain relevant amid the rise of hard-to-measure intangibles, and Barron’s reported in 2024 on research describing value’s underperformance versus growth over multiple decades.

🌍 Impact & adoption. The book’s concepts are embedded in Columbia Business School’s value-investing tradition, where the school’s resources and communications regularly foreground Graham’s approach and list the revised Intelligent Investor among recommended readings. University syllabi continue to assign chapters from the book—for example, Rutgers’ Applied Portfolio Management course and NYU Stern’s value-investing seminars—illustrating its ongoing use in curricula. Beyond classrooms, the book’s title has become a recurring media reference point through The Wall Street Journal’s Intelligent Investor column.

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