IFB20: the Intelligent Investor Summary of Chapter 8 and Mr. Market

Welcome to session 20 of the Investing for Beginners podcast. In today’s episode, we are going to discuss chapter 8 from Benjamin Graham’s Intelligent Investor. This is easily one of the best books on investing ever written and is a classic must read for any investor serious about learning how to invest and not speculate.
Written by Benjamin Graham in the early 1950s it has been a huge influence on many investors, including the great Warren Buffett. In fact, he credits this book enabling him to create large returns for his new shareholders and was a tremendous influence on him.

* Timing the market versus pricing
* Speculator versus investor
* Dow Theory
* Characteristics of a Bull Market
* Diversification
* Succesful Stock Paradox
* Mr. Market

This week we will discuss one the chapters that he says have had the biggest influence on him. Chapters 8 and 20 he credits with opening his eyes to the possibilities of making money with a margin of safety.
Andrew: This is one of Warren Buffett favorite chapters, and it explains kind of how the market works, and it gives an excellent overview of how to understand the stock market and how it can relate to investing strategy.
Dave: The first thing we are going to talk about tonight is timing versus pricing or investor versus speculator. One of the things that Graham talks about at the beginning of this chapter is that market timing is a fool’s game. There is not much that you can do about trying to time the market.
Investors are people that are going to be looking for the intrinsic value of a price and trying to make a decision based on when that intrinsic value is going to give them an advantage in the long run for buying that company. They are not necessarily worried about whether it could be purchased today or tomorrow. It could be a year from now, or a year and a half from now, or longer. It really depends on what the intrinsic value is of that company, and what the price is versus the market.
A speculator is someone who is going to be buying based on what the time is, so they are impatient. They are looking to try to purchase the company now and get out of it in the short term. With the goal to make money in that near future. That is what Graham considered a speculator.
Those are two the differences between those terms.
Andrew: The whole speculator being impatient. I like how in the entire chapter Graham brings up dividends. He doesn’t talk about dividends much in the rest of the book, but he talks about and relates it to this.
As a long term investor, you are going to be somebody who wants to hold a stock as possible because you’ll collect dividends along the way. Whereas a speculator, as you said is going to try to pick up quick profits, and sees a year with no profits as lost time.
There is a big gap there, and I think that there are some parallels that Graham makes here in the beginning and in this chapter about focusing on not only being a long-term investor but also being a long-term investor for yield or more specifically dividend yield. Just tracking those dividend payments that you receive into your portfolio.
And I think it’s something that might be missed by a lot of value investors, but I believe that dividends are obviously a huge factor in investing. I go on and on about them every single episode because of the importance I think they play.
Dave: they are, they are critical to making significant returns, and we do talk about them a lot, but that is because we like them, and they are our best friend in the investing world. #00:04:54-8#
The next subject that Graham tackles in this chapter are the Dow Theory, and this is one of Andrew’s specialties,