Legend's Investing Principles Ring True

Physician's Money DigestOctober15 2003
Volume 10
Issue 19

TheIntelligent Investor: The Definitive BookOn Value Investing, Revised Edition

The Intelligent Investor

Physicians searchingfor sound investingadvice needlook no farther than theirlocal bookstore. Thereyou will find a new editionof a classic, (HarperBusiness; 2003), by BenjaminGraham, updated with a new commentaryby Jason Zweig. Graham first wrote in 1949; his lastupdate was in 1972. Despite the fact thatit has been nearly 27 years since his death,Graham's investment principles are as relevanttoday as they were decades ago.

His Graham-Newman mutual fund producedan average annual gain of morethan 14.7% vs 12.2% for the overall marketfrom 1936 to 1956. It was 1 of thelongest and widest margins of out-performancein Wall Street history.

Graham's Philosophy

Graham defined stock as an ownershipstake in a business that, in the long run,can go up in value only if that businessgrows and stays profitable. Before thestock market's recent downturn, manyinvestors focused on the soaring prices ofInternet stocks and ignored how Internetbusinesses were unprofitable. In his day,Graham witnessed similar mistakes madeby investors—relating to auto stocks in1919, radio and utility stocks in 1929, andelectronic stocks in the 1960s.

Graham asks us to imagine that thestock market is a person. "Mr. Market"asks you to trade with him all day long.While usually stable and calm, sometimesMr. Market gets either manic or depressed.When he's manic, he sets highprices (and you should not buy from him).When he's depressed, he sets low prices(and you should refuse to sell to him).

Intelligent Investors

Graham believes you don't have to bean expert to do well in the markets.Keep your emotions in check, accept thelimits of your knowledge, be patient,and think independently. You shouldn'tignore Mr. Market entirely, but only dobusiness with him to the extent that itserves your interests, Graham advises.

Graham doesn't subscribe to thenotion that investors fall into 1 of 2groups (ie, conservative or aggressive).What kind of investor you are dependson how hard you're willing to work at it,he says. An enterprising investor enjoysthe intellectual challenge of studyingstocks or funds in detail and can put inthe time and effort necessary to build aportfolio. A defensive investor, however,does not like to get involved in thedetails of financial analysis.


A recent article in notes thatinvestors give a lot of attention to buyinga stock, little to selling it, and noneto owning it. Graham emphasizes theimportance of exercising the same careand judgment in owning a stock as youdo in acquiring it. When you buy a stock,Graham asserts, you are an owner of thecompany. Its managers, including theCEO, work for you and its board of directorsmust answer to you.

Heeding the advice of Graham's investingprinciples can help a physician-investornavigate the rough waters ofthe stock market and become a moreintelligent investor.

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