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TOP FINANCE BOOK WITH SUMMARY

Understanding different finance concepts is a must, no matter in which field you belong to. One way of taking this knowledge is from Finance Books which have been written by famous investors, economists, etc. We also know that understanding financial terms can be a bit strenuous sometimes. It does add up if you are a bibliophobe. If reading long pages of text isn’t your cup of tea, don’t worry. We have got you covered & collated a summary of the top finance book to help you with the complex financial world. Let’s get started and deep dive into the investment world.

(A) The Intelligent Investor, Benjamin Graham

One of the most loved & influential books on finance is The Intelligent Investor. This book mainly focuses on teaching the investment principles & attitudes to average investors. Graham has focused more on Intelligent Investing rather than analyzing securities in this book.

Investment Vs Speculation

Benjamin emphasizes keeping investment & speculation as separate concepts. He has highlighted the following points when it comes to intelligent investing:

  1. Fundamental Analysis of a company & its business practices before purchasing any stock

  2. Protection against severe losses

  3. Not focusing on higher returns, but seeking steady returns with adequate performance

Investment & Inflation

Investors must be mindful of inflation as the value of money erodes with time and it lowers your purchasing power of profits and principal. Graham suggests that Never put all your eggs in one basket. Fluctuation is uncertain, so don’t put all your money in an asset which has attractive interest rates and always diversify your portfolio

All about Defensive Investor

Identifying that if you are a defensive or enterprising investor is very important as you have to take these strategies along with you for your lifetime. Let’s understand what approach each of the investors adapts.

A person who can give their time, efforts, energy to continually research and pick stocks, bonds, mutual funds & other investment options refer to an “enterprising” or “active” investor.

A person who is unwilling to give their time, energy, research to investments, and puts their minimal efforts in the portfolio refers to a “defense” or “passive” investor.

One of the greatest challenges faced by a Defensive investor is to pick stocks without doing thorough research. The research differs when it comes to perceiving the fundamentals vs availing the services of the company. Thus, a defensive investor should sit still and not get thrilled by market fluctuations and take any impulsive investment decisions.

Graham has suggested some points to be kept in mind while following an aggressive investor approach:

  1. Avoid Day Trading. Don’t fall into the vicious cycle of buying and selling as the market fluctuates. For those who take the path of aggressive investing, it is a well-known fact that the more you trade, the less you keep/earn.

  2. Don’t go for IPO just because everyone is talking about it. There is a good no of chances that it must be overvalued and you can take your call based on your emotional judgment.

  3. Don’t pay too much for the stock because as the company grows there is very little room left for steady growth.

Investment in Investment Funds

Advertisements depict investing in mutual funds as a lot easier task, but it is not true in the real world. There is a number of factors that affect mutual funds and one should carefully choose while going for this as an investment option.

There was a study conducted by scholars on mutual funds and the following points were concluded:

  • Mutual Fund’s expenses are directly inverse to its returns

  • There is volatility in mutual funds which will continue for a long time

  • The research done for choosing the stocks is not up to the mark

  • The high returns of mutual funds in the past may not continue for the future

Though, mutual funds reduce an investor's burden to research, analyze & perform the stock selection. It also helps in the portfolio diversification for the investor and doesn’t include much time and efforts.

Alternatively, Index Funds as an investment option is one of the general ways to invest in. Index funds own all the stocks as any fund does and if you are keen to hold this investment for 20 years or more, then it outperforms the majority of professional funds.

Many investors who don’t want to burden themselves with all of the work involved, they usually go for Financial Advisor. A financial advisor can be an essential asset, as you have someone to take advice from for your portfolio. One thing to keep in mind is, choose your financial advisor if you trust them and don’t forget to verify their background.

(B) Security Analysis

Graham has provided five qualities that an investor can take into consideration when you are looking out for a stock. Look out for the following five points:

  • Company’s long-term expectations: This requires an investor to look at the company’s at least five-year annual report and find the answer to these two questions: Where is the company earning profit from and what product is making this company grow?

  • Company’s management: The quality of a company’s management should be honest and it should take account of all their failures. The work of the management depicts in their actions and their working style.

  • Financial Strength: An investor should assess a company’s financial books and analyze how much cash is produced. They should also keep in mind, how much of the capital is reinvested for the growth of the company.

  • Dividend Record: Study the dividend records of a company. If the dividend has been increased over the years, this is a positive sign for the investors.

  • Check their current dividend rate and analyze it with its competitors.

Margin of Safety

This is a central concept of investment and Graham emphasizes the fact that to be an intelligent investor you should never lose the majority or all of your money. We are the greatest risk of our financial portfolio and it resides in what kind of investor we are.

The chances of making a bad investment decision in your investment lifetime are 100 % guaranteed. Thus, one should take enough protection if any bad losses occur. Graham says that an investor should keep a diversified portfolio without not getting much bothered by market fluctuations and keeping your emotions in place.

The Intelligent Investor by Benjamin Graham is one of the most preferred books when it comes to investment. Warren Buffet says it is by far the best book ever written on investing. One should get their hands on this book for a detailed study.


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