Intelligent investing

You may not have heard of Benjamin Graham, but he holds a place on the roster of great investors and was Warren Buffett’s mentor. So he knew a thing or two about investing — and he shared his insights. Here are some instructive quotations from his classic book, “The Intelligent Investor” (Harper Business, $25).

• “The investor’s chief problem — and even his worst enemy — is likely to be himself.” Many investors jump into the stock market only to quickly bail out as soon as it slumps. There are gobs of other costly mistakes investors make when they haven’t taken the time to learn about investing and don’t control their impulses.

• “The distinction between investment and speculation in common stocks has always been a useful one and its disappearance is cause for concern.” This is indeed a critical distinction to understand. If you’re buying stocks simply because someone recommended them, without really understanding how the underlying companies make money, you’re speculating.

You’re also speculating if you’re jumping in and out of stocks. Savvy investors study companies and know what they’re buying into — and why. They also aim to hang on for a long time to give the companies time to grow.

• Graham distilled “the secret of sound investment” into these three words: “margin of safety.” Demanding a margin of safety when you invest means aiming to buy stocks at prices well below what you deem them to be worth. As Graham further explained: “The margin of safety is always dependent on the price paid. It will be large at one price, small at some higher price, nonexistent at some still higher price.”

• “There are no sure and easy paths to riches on Wall Street or anywhere else.” Average investors can get rich over long periods by investing in broadmarket index funds, but it takes time — and perseverance.

Buffett has called “The Intelligent Investor” “by far the best book on investing ever written.” If you want to improve your investing, you might check it out.