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Resource Library

Timeless Wisdom

By Jim Miller, CFP, President & CEO

I was recently reading The Intelligent Investor, by Benjamin Graham with commentary by Jason Zweig, a true classic in the investment world. Below, I have shared a small number of the many gems of wisdom that appear throughout the book. Graham’s investment philosophy and principles have been adopted by some of the most successful investors, including Warren Buffett. He is also frequently cited by our fund managers.

  • When every investor begins to believe that stocks are guaranteed to make money in the long run, won’t the market end up being wildly overpriced? And once that happens, how can future returns possibly be high?
  • A great company is not a great investment if you pay too much for it.
  • The value of any investment is, and always must be, a function of the price you pay for it. By the late 1990s, inflation was withering away, corporate profits appeared to be booming, and most of the world was at peace. But, that did not mean—nor could it ever mean—that stocks were worth buying at any price. Since the profits that companies can earn are finite, the price that investors should be willing to pay for stocks must also be finite.
  • By the rule of opposites, the more enthusiastic investors become about the stock market in the long run, the more certain they are to be proved wrong in the short run.
  • As Danish philosopher Soren Kierkegaard noted, life can only be understood backwards, but it must be lived forwards. Looking back, you can always see when you should have bought and sold your stocks. However, do not let that fool you into thinking you can see, in real time, just when to get in and out. In the financial markets, hindsight is forever 20/20, but foresight is legally blind. And thus, for most investors, market timing is a practical and emotional impossibility.
  • A century ago, Andrew Carnegie recommended that “you put all of your eggs in one basket and watch that basket.” Nearly all of the richest people in America trace their wealth to a concentrated investment in a single industry or even a single company (recent examples include Bill Gates/Microsoft and Sam Walton/Walmart). However, concentration also makes most of the great failures in life. Of the 400 richest Americans in on the 1982 Forbes 400, only 64 were still on the list in 2002. Had they simply earned an average 4.5% return on their assets, they would have remained on the list. During this 20 year period, bank accounts yielded more than 4.5% and the stock market gained an average 13%. Keeping all of their eggs in the one basket that had gotten them onto the list in the first place worked against them during the following 20 years.
  • If you live in the US, work in the US and get paid in US dollars, you are already making a multilayered bet on the US economy. To be prudent, you should invest some of your funds elsewhere—simply because no one, anywhere, can ever know what the future will bring at home or abroad.
  • The idea of risk is often extended to apply to a possible decline in the price of a security, even though the price may be of a cyclical and temporary nature, and even though the holder is unlikely to be forced to sell at such times. A better definition of risk is a loss of value realized through actual sale or caused by a significant deterioration in the company’s position. Or more frequently, risk is the result of paying more than the intrinsic worth of the investment.
  • Risk exists in another dimension: inside you. If you overestimate how well you really understand an investment, or overstate your ability to ride out a temporary plunge in prices, it does not matter what you own or how the market does. Ultimately, financial risk resides not in what kinds of investments you have, but in what kind of investor you are.

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