LESSONS
BY PAUL CLUER
Intelligent Investing
Know thyself...
T
he Intelligent Investor is a seminal text
on value investing written by Benjamin
Graham (Warren Buffett’s mentor) in 1949.
Its content has been applied and debated for the last
six decades.
of the Temple of Apollo at Delphi. This seems an
appropriate point of departure for any investor.
Intelligent investing need not involve a high degree
of financial education, and it need not require a full
time preoccupation with the investment markets.
The oft-cited nub of Graham’s investment thesis
is that investing should be a rational, analytical
process involving a keen assessment of risk and the
proverbial “margin of safety”. Graham was quoted as
saying that you are neither right nor wrong because
the crowd disagrees with you. You are right because
your data and reasoning are right.
Dave Foord, in his book Time in the Markets,
advises investors to “set investments that are realistic,
within their budget and within their intellectual and
emotional range”.
Define your style
Graham’s approach is profoundly rational, but it
is not devoid of any psychological or behavioural
elements. One of Graham’s basic precepts is the
determination of where an investor f its on the
spectrum between “defensive” and “aggressive or
enterprising”. Graham distinguishes the two investor
groups by the amount of intelligent effort they are
willing to expend on investment research, not by the
amount of risk they are willing to take.
Defensive investors aim to reduce investment
effort, annoyance and decision frequency. By
contrast, enterprising investors are more willing
(or indeed more able) to devote time and care to the
selection of securities. Note how defensive investors
are not described as “risk averse”, nor are enterprising
investors described as “risk taking”.
Honest assessment
The ancient Greek aphorism “know thyself ” is a
Delphic maxim that was inscribed in the forecourt
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Offshore Handbook 2014
Deliberate, thoughtful process
Being an intelligent investor means understanding
why you are investing, what the role and objective
of your investments are, and appreciating the time
horizon realistically necessary to achieve those
outcomes. Those tenets form the basis of subsequent
successful investment decision-making. They
guide the reasoning for selecting a particular kind
of investment or fund manager. They provide a
framework for forming suitable expectations and
managing those expectations appropriately. They
compel an investor to reflect carefully on his or her
reaction to circumstances, and they are the bedrock
of consistency in such responses.
Intelligent investing is a deliberate, thoughtful
process, regardless of the investor’s level of skill or
experience. It is not a process devoid of emotion,
but one that embraces an understanding of emotion
and how best to manage such emotion rationally.
The maxims are universally applicable, whether to a
professional fund manager or to the man or woman
in the street.
RESOURCES
Foord Asset Management
www.reimag.co.za