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Preface to the Fourth Edition, by Warren E. Buffett

A Note About Benjamin Graham, by Jason Zweig x

Introduction: What This Book Expects to Accomplish 1

COMMENTARY ON THE INTRODUCTION 

1. Investment versus Speculation: Results to Be

Expected by the Intelligent Investor 

COMMENTARY ON CHAPTER 

2. The Investor and Inflation 

COMMENTARY ON CHAPTER 

3. A Century of Stock-Market History:

The Level of Stock Prices in Early 1972

the intelligent investor ebook download

COMMENTARY ON CHAPTER 

4. General Portfolio Policy: The Defensive Investor

COMMENTARY ON CHAPTER

5. The Defensive Investor and Common Stocks 

COMMENTARY ON CHAPTER 

6. Portfolio Policy for the Enterprising Investor:

Negative Approach

COMMENTARY ON CHAPTER 

7. Portfolio Policy for the Enterprising Investor:

The Positive Side 

COMMENTARY ON CHAPTER 

8. The Investor and Market Fluctuations 

iv the intelligent investor book

viii

v Contents

COMMENTARY ON CHAPTER 

9. Investing in Investment Funds

COMMENTARY ON CHAPTER 

10. The Investor and His Advisers

COMMENTARY ON CHAPTER 

11. Security Analysis for the Lay Investor:

General Approach 

COMMENTARY ON CHAPTER

12. Things to Consider About Per-Share Earnings

COMMENTARY ON CHAPTER 

13. A Comparison of Four Listed Companies 

COMMENTARY ON CHAPTER 

14. Stock Selection for the Defensive Investor

COMMENTARY ON CHAPTER 

15. Stock Selection for the Enterprising Investor 

COMMENTARY ON CHAPTER 

16. Convertible Issues and Warrants 

COMMENTARY ON CHAPTER 

17. Four Extremely Instructive Case Histories 

COMMENTARY ON CHAPTER 

18. A Comparison of Eight Pairs of Companies

COMMENTARY ON CHAPTER 

19. Shareholders and Managements: Dividend Policy

COMMENTARY ON CHAPTER 

20. “Margin of Safety” as the Central Concept

of Investment 512

COMMENTARY ON CHAPTER 

Postscript 532

COMMENTARY ON POSTSCRIPT 

Appendixes

1. The Superinvestors of Graham-and-Doddsville 

Contents vi

2. Important Rules Concerning Taxability of Investment

Income and Security Transactions 

3. The Basics of Investment Taxation

(Updated as of 2003)

4. The New Speculation in Common Stocks 563

5. A Case History: Aetna Maintenance Co.

6. Tax Accounting for NVF’s Acquisition of

Sharon Steel Shares

7. Technological Companies as Investments 

Endnotes 

Acknowledgments from Jason Zweig 

About the Authors

Credits

Front Cover

About the Publisher

A Note About Benjamin Graham

erness—on upper Fifth Avenue. But Ben’s father died in 1903, the

porcelain business faltered, and the family slid haltingly into poverty.

Ben’s mother turned their home into a boardinghouse; then, borrowing money to trade stocks “on margin,” she was wiped out in the crash

of 1907. For the rest of his life, Ben would recall the humiliation of

cashing a check for his mother and hearing the bank teller ask, “Is

Dorothy Grossbaum good for five dollars?”

Fortunately, Graham won a scholarship at Columbia, where his

brilliance burst into full flower. He graduated in 1914, second in his

class. Before the end of Graham’s final semester, three departments—

English, philosophy, and mathematics—asked him to join the faculty.

He was all of 20 years old.

Instead of academia, Graham decided to give Wall Street a shot.

He started as a clerk at a bond-trading firm, soon became an analyst,

then a partner, and before long was running his own investment partnership.

The Internet boom and bust would not have surprised Graham. In

April 1919, he earned a 250% return on the first day of trading for

Savold Tire, a new offering in the booming automotive business; by

October, the company had been exposed as a fraud and the stock

was worthless.

Graham became a master at researching stocks in microscopic,

almost molecular, detail. In 1925, plowing through the obscure

reports filed by oil pipelines with the U.S. Interstate Commerce Commission, he learned that Northern Pipe Line Co.—then trading at $65

per share—held at least $80 per share in high-quality bonds. (He

bought the stock, pestered its managers into raising the dividend, and

came away with $110 per share three years later.)

Despite a harrowing loss of nearly 70% during the Great Crash of

1929–1932, Graham survived and thrived in its aftermath, harvesting

bargains from the wreckage of the bull market. There is no exact

record of Graham’s earliest returns, but from 1936 until he retired in

1956, his Graham-Newman Corp. gained at least 14.7% annually,

versus 12.2% for the stock market as a whole—one of the best longterm track records on Wall Street history.3

3 Graham-Newman Corp. was an open-end mutual fund (see Chapter 9)

that Graham ran in partnership with Jerome Newman, a skilled investor in his

own right. For much of its history, the fund was closed to new investors. I am

A Note About Benjamin Graham xii

How did Graham do it? Combining his extraordinary intellectual

powers with profound common sense and vast experience, Graham

developed his core principles, which are at least as valid today as they

were during his lifetime:

• A stock is not just a ticker symbol or an electronic blip; it is an

ownership interest in an actual business, with an underlying value

that does not depend on its share price.

• The market is a pendulum that forever swings between unsustainable optimism (which makes stocks too expensive) and unjustified

pessimism (which makes them too cheap). The intelligent investor

is a realist who sells to optimists and buys from pessimists.

• The future value of every investment is a function of its present

price. The higher the price you pay, the lower your return will be.

• No matter how careful you are, the one risk no investor can ever

eliminate is the risk of being wrong. Only by insisting on what

Graham called the “margin of safety”—never overpaying, no matter how exciting an investment seems to be—can you minimize

your odds of error.

• The secret to your financial success is inside yourself. If you

become a critical thinker who takes no Wall Street “fact” on faith,

and you invest with patient confidence, you can take steady

advantage of even the worst bear markets. By developing your

discipline and courage, you can refuse to let other people’s mood

swings govern your financial destiny. In the end, how your investments behave is much less important than how you behave.

The goal of this revised edition of The Intelligent Investor is to apply

Graham’s ideas to today’s financial markets while leaving his text

entirely intact (with the exception of footnotes for clarification).4 After

each of Graham’s chapters you’ll find a new commentary. In these

reader’s guides, I’ve added recent examples that should show you just

how relevant—and how liberating—Graham’s principles remain today.

grateful to Walter Schloss for providing data essential to estimating

Graham-Newman’s returns. The 20% annual average return that Graham

cites in his Postscript (p. 532) appears not to take management fees into

account.

4 The text reproduced here is the Fourth Revised Edition, updated by Graham in 1971–1972 and initially published in 1973.

xiii A Note About Benjamin Graham

I envy you the excitement and enlightenment of

The Intelligent Investor free pdf book download