Notes To Benjamin Graham’s book, “The Intelligent Investor.”

I originally took these notes based on my reading of the books 4th edition. I read the “revised edition” which was updated with new commentary by Jason Zweig. I am not certain, but I think this is referred to now as the 5th edition. These notes add to our notes on this page. These notes are from April 25, 2004 from the “revised edition.”

Benjamin Graham is known as the grandfather of investing. Warren Buffett, Martin Zweig, Peter Lynch and many others follow his principles heavily.

Notes from “Revised edition.”

I have a rating system I use for book that I have read. I rated the revised edition a 10/10. This book is a must read for any serious investor who uses fundamental analysis.

1. “In any case the investor may as well resign himself in advance to the probability rather than the mere possibility that most of his holdings will advance, say , 50% or more from their low point and decline the equivalent one-third or more from their high point at various periods in the next five years.” Zweig expands on this. He emphasizes the word “probability.” He mentions that if you think your portfolio is “magically exempt from it, then you can not call yourself an investor.”

2. Interesting table on page 284. The table describes a minimum ratio of “Earnings to Total Fixed Charges.” I have my own use of this formula. The table is at favorite ratiosand formulas.html . I typically like to see this ratio at least > 4X, and often > 6X.

3. The following formula and grid can be found at this link Grahamand DoddPE Matrix.html .

P/E = 8.5 + 2 (Growth Rate) * 4.4/30 year AAA Corporate Bond Rate

I have tailored the above formula and call it the RBCPA Intrinsic Value Formula. The growth figure used below should be the one you expect over the next 7 to 10 years.

RBCPA Intrinsic Value = eps* ((2*growth rate)+8.5)*4.4/30 AAA corporate bond rate

Please keep in mind that in my opinion, there is NO one magic formula.


Notes from “4th edition.”


1. What’s needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework.

2. In most periods the investor must recognize the existence of a speculative factor in common stock holdings. It is his task to keep this component with minor limits, and to be prepared financially and psychologically for adverse results that may be short or long duration.

3. It took General Electric and the Dow Jones Industrial Average 25 years to recover the ground lost in the 1929 ‑ 1932 debacle.

4. S & P 500 took about 26 years to recover from its low in 1929.

5. When the market appears to be severely overvalued, stop all dollar cost averaging plans.

6. The rate of return should be dependent; rather, on the amount of intelligent effort the investor is willing and able to bring to bear on his task. The alert and enterprising investor who exercises maximum intelligence and skill would realize the maximum return.

7. NEW ISSUES ‑ Our one recommendation is that all investors should be wary of new issues ‑ which means, simply, that these should be subject to careful examination and unusually severe tests before they are purchased.

8. One fairly dependable sign of the approaching end of a bull swing is the fact that new common stocks of small and nondescript companies are offered at prices somewhat higher than the current level for many medium sized companies with a long market history.

9. If you buy mutual funds concentrate on the funds with discounts to NAV of 10 to 15%. This is a raw general figure.

10. The role of the advisor is to use his superior training and experience to protect his clients against mistakes and to make sure that they obtain the results to which their money is entitled. It is when the investor demands more than the average return on his money, or when the adviser undertakes to do better for him, that the question arises whether more is being asked or promised than is likely to be delivered.

11. The basic thesis for choosing an adviser is this… “He must have an unusually intimate and favorable knowledge of the person who is going to direct his funds.”

12. The intelligent investor will use services such as Value Line and Morningstar for supplying information and offering suggestions. He will not do his buying and selling based solely on these recommendations.

13. Ideally, perhaps, the security analyst should pick three or four companies whose future he thinks he knows best and ultimately concentrate on them.
14. Always take advantage of prices that are ridiculous to any fundamental. Even if it means capital gains tax to pay.

15. “Every competent analyst looks forward to the future rather than backwards to the past. Always keep in mind projection and protection.”

16. The defensive investor should emphasize diversification rather than individual selection.

Respectfully Submitted,

Ronald R. Redfield CPA, PFS