Investing is not as complicated as a lot

of people think. Some of the world's

greatest investors like Warren Buffett

and Charlie Munger rest a soul talk

about this all the time. It's not rocket

science and people tend to over

complicate it. And if you haven't heard

of Warren Buffett, at the time of this

recording, he's the sixth richest person

in the world, clocking in at $145

billion. And he made his wealth as an

investor. And in his younger years,

Buffett was actually a disciple of

Benjamin Graham, who is the author of

the book The Intelligent Investor, which

this video is going to summarize.

Buffett has even gone so far as to say

that The Intelligent Investor is quote,

"By far the best book on investing ever

written." And I would definitely agree

with him. I've been using the principles

from this book to skyrocket my own

wealth in the stock market over the last

15 years. And the first big lesson from

the intelligent investor is the idea of

Mr. Market. So, let's say you own a farm

that generates a certain amount of

profit every year. And you have a

neighbor named Mr. Market. And every

day, Mr. Market knocks on your door and

offers to buy your farm for a certain

amount of money. Let's say a million.

Now, the first couple of weeks, the

price he offers you is about the same,

moving up or down a few percentage

points. So, you might think, huh, okay,

my farm is worth about a million. But

over the course of several years, you

start to notice that Mr. market is

actually not the normal rational guy you

thought he was when he first moved in

next door. You realize that he's

actually a lunatic who frequently takes

complete leave of his senses because

some days you see him skipping with joy

in the way to your house, offering you

$10 million for your farm. But a couple

months later, you see him boarding up

the windows to his house, raving like a

madman about how the world is coming to

an end, and he offers you just $50,000

for your entire farm, which is less

money than your farm generates in profit

in a single year. And so, you realize

that when you're trying to figure out

the true value of your farm, you can't

just take what Mr. Market is offering

you at face value. You have to do some

type of analysis to figure out the

intrinsic value based on real business

fundamentals like how much profit you

generate every year, how fast your farm

is growing, how fast the price of

produce is rising, and other factors

like this. And the reason it's important

to know this is because Mr. Market is

never forcing you to make a deal with

him. He's just providing you with an

opportunity to make a deal. So if you

calculate that based on the business

fundamentals of your farm, it's worth $3

million. Then when Mr. Market comes a

knocking and offers you a million, you

can turn him away. And when he offers

you $10 million, you can take him up on

his offer and sell. In the next year, if

you run into him at the grocery store

and nothing has fundamentally changed

about the farm, but Mr. Market is going

on one of his paranoid rants again and

is trying to get rid of the farm as fast

as possible. you can take him up on his

offer again and buy it back at half a

million dollars. Here's what Benjamin

Graham is trying to teach you with the

Mr. Market analogy. Mr. Market is

obviously the stock market. And when you

buy a stock like Apple or Google or

Microsoft, you're not just buying some

ticker symbol on a chart that moves up

and down. You're essentially buying a

percentage ownership in that actual

company. And Graham's philosophy is make

your investing decisions based on what

price you would pay to truly become a

part owner in that company. If little

Susie down the street is selling stock

in her lemonade stand, which earns $10 a

day, and you find out that little Susie

is actually selling that lemonade

illegally because she doesn't even have

a food permit, and all the neighbors are

getting sick after drinking her lemonade

because little Susie never remembers to

wash her damn hands. It doesn't matter

if the stock market is valuing Little

Suz's lemonade company at $10 million.

You should know that that's a stupid

price to pay to buy into that company.

Now, you might think that that's a

ridiculous example. So, let's look at

some realworld examples. Here's a chart

of American Express stock. During the

financial crisis of 2008, the value of

American Express stock went down 75% in

less than a year. Now, of course, there

was a lot of fear and worry about the

financial system during that time, and

rightfully so. The financial crisis was

a huge deal, but American Express is a

huge global network that processes

hundreds of billions of transactions

every year. Can you imagine trying to

start a competing business to American

Express today? You can count the number

of competitors they've had for the last

3 to four decades on one hand. So the

idea of that entire global network with

all of their business assets having

their value evaporate

75% in less than one year. Some

investors might interpret that as Mr.

Market going on one of his mad ravings

again and

overreacting. Investors that just held

on to their investment and did nothing

would have recovered and would be up

500% today from the previous peak from

before the financial crisis. And the

people who took advantage and bought

more shares at ultra cheap prices when

Mr. Market went completely bonkers would

be up

2500% on their investment in just 15

years. That means if you invested

$100,000 when the price went to its

lowest in just 15 years it would have

been worth $2.6 million. Now for our Gen

Z listeners let's take a look at a more

recent example. Marriott. During the co

crash in 2020, the value of Marriott

stock went down by 60% in just 6 weeks.

Now, Marriott is worth tens of billions

of dollars. They generate billions of

dollars in revenue every year. They have

over 30 brands in almost 9,000

properties across 140 countries. They

have the most popular points program for

frequent business travelers. It makes

sense for the stock price to drop in

times of fear and uncertainty,

especially since nobody knew how long CO

was going to stick around or how long

travel would be locked down for. But a

60% drop in value in 6 weeks, investors

who felt that Mr. Market was getting a

little paranoid there and ended up

buying Marriott stock after this crash

would have made a 330% return on their

investment in just four years. Graham's

disciple Warren Buffett has a great

quote to summarize this entire concept.

Be fearful when others are greedy and

greedy when others are fearful. And this

segus really nicely into the next big

lesson from the book, which is to

require a margin of safety. Investing is

always going to have some degree of

risk, but literally anything in life has

risk. Sitting inside your house has risk

because a plane could crash into it.

Holding your money in a checking account

has risk because it could be severely

devalued by inflation. So risk is a

spectrum. And while you can't completely

get rid of it, you can do things to

reduce it and therefore tilt the scales

a bit more in your favor. So let's say

you're a civil engineer and you build a

bridge and you use your fancy college

education to calculate that this bridge

can hold 50,000 lb without breaking.

When you go to the state authorities,

you're not going to tell them that this

bridge's limit is £50,000. You're going

to tell them that they should not exceed

45,000 or £40,000 because there's always

some risk of the unknown and you want to

protect yourself with a buffer which

Graham calls your margin of safety. So

when you calculate what you think is a

fair valuation for a company's stock,

Graham suggests to apply a margin of

safety by only buying if the price dips

a certain amount below what you think is

the right value. He suggests that if

you're buying a company's bonds, and if

you don't know what a bond is, bonds pay

out a fixed amount of interest every x

amount of months until the bond matures,

kind of like a bank CD. So, if you're

buying a bond and you're trying to

figure out the risk of the company

defaulting on that bond, then you should

look for a margin of safety where even

if business slows down for that company,

they have enough financial padding that

they can weather a slowdown or a

recession and not go under. And this

concept of riskmanagement is a recurring

theme throughout the book and it shows

up in a lot of different ways because

Graham explains how properly

understanding and managing risk is a

huge part of being an intelligent

investor. And part of that

riskmanagement process is having a clear

understanding of your own personal

situation and risk tolerance. Grim says

that there's basically two categories of

investors, defensive and enterprising.

Defensive investors encapsulate the vast

majority of the population. It's regular

people who can follow a pretty standard

playbook for investing. Here are some of

the strategies Graham outlines for

defensive investors. One, diversify your

investments. Don't put all your eggs in

a single basket. Graham lays out some

statistics for how many people

overconentrate their investments into

just a single company, like the company

they work for. This is incredibly risky

for a lot of different reasons.

Something that's called out in the

book's commentary notes is that in

today's times, a great way to diversify

is with something like an index fund

that tracks the S&P 500, which matches

the performance of the 500 largest

companies listed on the stock exchange

in the United States. Which brings us to

point number two, which is to stick with

large prominent companies. If you want

to be a follower of Graham's teachings,

then unsubscribe from all those shitty

newsletters that try to pedal you penny

stocks as the next big thing. Large

wellestablished companies with a long

and successful track record are a better

place to be according to Graham. And

again, you can get exposure to these

with an S&P 500 index fund. Point number

three, dollar cost average. This is the

idea where you take a fixed amount of

money that you can afford to invest

every month and you do it consistently

every month without fail like clockwork.

Ken Fischer, the billionaire founder of

Fisher Investments, has a famous quote

that summarizes this idea really well.

He says, "Time in the market beats

timing the market." There's an entire

subsp specialty of research called

behavioral finance that's really

fascinating. I'll be doing some videos

on it in the future, but there's

overwhelming research that shows that

humans are notoriously bad at timing the

market. Like, you always hear the

advice, buy low, sell high, but it's

almost like we're hardwired to make poor

timing decisions because of our

emotions. And so dollar cost averaging

takes that psychological disadvantage

out of the equation. Now what Graham

calls an enterprising investor is

someone who might be more experienced or

savvy and so they might stray from these

general guidelines because they have a

particularly specialized set of

knowledge that gives them an advantage

in certain areas of investing. So this

could be like famously successful hedge

fund managers like Ray Dalio or John

Paulson. You know these guys are not

dollarcost averaging into the S&P 500.

They have dedicated their entire lives

and careers to being extremely savvy

investors that can beat the averages.

But most people are not professional

hedge fund managers, which leads us to

the next lesson, which is that the same

investment can have different degrees of

actual risk to different people. And

this builds even more on the earlier

lesson of really understanding your

personal situation and investing

accordingly. The book gives a really

good example on this by talking about

mortgages. So imagine you have a

situation where interest rates are

really low and there's a big housing

boom where everyone's trying to buy a

house and you got these two families who

each buy a house. In this example, let's

say that the two houses are identical

and right next door to each other. Now

family one is basically retired and the

town where they bought this house, they

grew up in this town their whole lives,

right? They have a ton of family and

friends in this town. Their kids go to

school in this town. So, they know with

a really high degree of certainty that

they're going to stay in this house for

a really, really long time, at least 10

to 15 years, and they're happy. They're

able to lock in a super low interest

rate on their mortgage, super low

monthly payments. They're not paying

rent anymore. It's a great financial

move. Now, right next door, you have

family two. And family two is just a

husband and wife. They don't have kids.

They don't have any friends or family in

the area. They don't really have

anything tying them to this town. And

historically, they they've moved cities

and states every few years when they got

better job offers somewhere else. And

they really just bought this house as a

type of investment so they could stop

paying rent. Now, a couple years later,

they get laid off from their jobs or

they get job offers that'll give them a

40% pay raise, but they have to move to

a different state to take those new

jobs. And obviously, they're going to

take them because there's really nothing

keeping them in this town. So, they have

to sell the house. But that year,

interest rates skyrocketed. the housing

market is way down and after realtor

commissions and closing fees, they

actually have to take a pretty big loss

on their house. Now, if they stayed in

their house for 10 to 15 years, sure it

might have been a great investment, but

because of their specific personal

situation where they're forced to sell

out of an investment at an inopportune

time, what was a great investment for

their neighbors was a horrible

investment for them because they had a

higher likelihood of being forced to

sell early. So Grim argues that this

general principle should be applied to

your investment strategy. The investment

portfolio of a retired widow in her 60s

who's the primary caretaker of her three

young grandchildren should probably be

totally different than the investment

portfolio of a 25-year-old who has a

degree in finance and works the

investment industry. Now, interestingly

enough, Benjamin Graham and Warren

Buffett do have some disagreements over

investment philosophy. And one of those

areas they disagree on is the idea of

buying the stock of companies that you

know. So Buffett recommends buying

companies that are in what he calls your

circle of competence. The idea is if you

really know the companies and understand

them, you'll be more likely to succeed

than if you branch out into areas where

you're not as familiar. And this can

make a lot of sense, especially from a

riskmanagement point of view. Because

the area where a lot of people get

burned is when they start investing in

things that they don't understand. They

might just be buying those things

because everyone around them is doing

it. But Graham argues that this buy what

you know mentality can actually be

dangerous because it leads to a form of

overconfidence called home bias where

the more you feel like you already know

about a company or stock, the less

likely you are to probe it for

weaknesses. He provides some statistics

that back this theory up, like the fact

that 401k investors keep between 25 to

30% of their retirement funds in the

stock of the company they work for. And

a lot of investors like this got their

finances absolutely destroyed when

companies like Enron or Signature Bank

just collapsed pretty much overnight.

And the people who worked there who had

30% of their investments in their

employer stock saw their money vanish

along with their jobs. So now they're

out of money and they're out of a job.

Double the risk. As Graham writes in the

book, in short, familiarity breeds

complacency. The more familiar a stock

is, the more likely it is to turn a

defensive investor into a lazy one who

thinks that there's no need to do any

homework. Don't let this happen to you.

Now, a happy medium approach that Graham

does approve of is that you can still

buy what you know so you don't get

burned on investments that you don't

understand. But you should

simultaneously be following the other

principles from the book in parallel.

Meaning that you diversify instead of

putting your entire investment portfolio

into just one or two companies and that

you don't get lazy and still do the work

to actually analyze the businesses that

you're investing in. instead of just

buying them because you feel like

they're good companies since you see

them everywhere. Now, if you want to

dive deeper into topics like finance and

investing, I'm linking some related

videos on the screen that I highly

recommend, like my summary of Morgan

Hel's book, The Psychology of Money. And

if you like this summary and you want to

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watching. Good luck in your adventure

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