Writing About Economics and Finance

If you have built castles in the air, your work need not be lost; that is where they should be. Now put the foundations under them. — Henry David Thoreau, Walden

Benjamin Graham is offering to us valuable advices, making us to see the big picture of becoming an intelligent investor and to understand very precious ways regarding the protection of your money, because once you lose 95% of your money, you have to gain 1,900% just to get back to where you started.

Even there will be many risks, an intelligent investor has to be very careful and to take into consideration these situations: how you can minimize the odds of suffering irreversible losses; how you can maximize the chances of achieving sustainable gains; how you can control the self-defeating behavior that keeps most investors from reaching their full potential.

“So, try not to become your own worst enemy!”

To not to expose yourself to the excitement and the temptations of the stock market, you have to become patient, disciplined and eager to learn because this means acting like an intelligent investor. Moreover, this kind of intelligence is a trait more of the character than of the brains. There are incredible stories that are proofing that high IQ and higher education are not enough to make an investor intelligent. In 1998, Long-Term Capital Management L.P., a hedge fund run by a battalion of mathematicians, computer scientists, and two Nobel Prize–winning economists, lost more than $2 billion in a matter of weeks on a huge bet that the bond market would return to “normal.” But the bond market kept right on becoming more and more abnormal—and LTCM had borrowed so much money that its collapse nearly capsized the global financial system. And back in the spring of 1720, Sir Isaac Newton owned shares in the South Sea Company, the hottest stock in England. Sensing that the market was getting out of hand, the great physicist muttered that he “could calculate the motions of the heavenly bodies, but not the madness of the people.” Newton dumped his South Sea shares, pocketing a 100% profit totaling £7,000. But just months later, swept up in the wild enthusiasm of the market, Newton jumped back in at a much higher price—and lost £20,000 (or more than $3 million in today’s money). For the rest of his life, he forbade anyone to speak the words “South Sea” in his presence.

“Sir Isaac Newton was one of the most intelligent people who ever lived, as most of us would define intelligence. But, in Graham’s terms, Newton was far from an intelligent investor. By letting the roar of the crowd override his own judgment, the world’s greatest scientist acted like a fool. In short, if you’ve failed at investing so far, it’s not because you’re stupid. It’s because, like Sir Isaac Newton, you haven’t developed the emotional discipline that successful investing requires. “

Benjamin Graham, the author of the great book “The Intelligent Investor”, believed that every day it’s important to remember to do “something foolish, something creative and something generous”.

Walter Lippman, a person who showed a deep admiration for Benjamin Graham, used to speak about Benjamin Graham as the man who plant trees that other man will sit under.

When he was twenty years only, Benjamin Graham felt a call for the Wall Street’s world and he decided to give a shot. He was a clerk before becoming an analyst, then a partner and in time he developed his own partnership investment.

What is he expecting to accomplish by writing the book “The Intelligent Investor”?

Benjamin Graham thinks it is important to pay attention to investment principles and investors’ attitudes. To invest intelligently in securities “one should be fore-armed with an adequate knowledge of how the various types of bonds and stocks have actually behaved under varying conditions”. In this consideration, no statement is more true and better applicable to Wall Street than the famous warning of Santayanas: “Those who do not remember the past are condemned to repeat it”.

The author, moreover, is making a difference between an investor and a speculator. Like in a love relationship, investing feelings is different than speculating the other with big words and big promisses.

With this end in my mind, it is recommended to continue to devote attention to the possibilities for enterprising investment as they existed in former periods and may return because the art of successful investment lies first in the choice of those industries that are most likely to grow in the future and then in identifying the most promising companies in these industries.