Graham would easily be the most famous investor of the 20th century, if it
weren’t for his student – Warren Buffett – likely the only person to surpass
him in investing brilliance.
poverty he became an excellent student at Columbia and upon graduation started
his investing career with a job on Wall Street. He wrote down his investing
principles in 1949 inside The Intelligent Investor, which Warren Buffett calls
the best book on investing ever written.
Here are 3 key lessons from Graham’s book to
help you start investing:
There are 3 principles to
intelligent investing: analyze for the long term, protect yourself from losses,
and don’t go for crazy profits.
Never trust Mr. Market, he can be very
irrational in the short and medium term.
Stick to a strict formula by which
you make all your investments, and you’ll do fine.
Always create a margin of safety
while buying any stock. Never buy a stock for more than two-third of its
There are 9 principles for being a Defensive
Divide your portfolio in 50:50 (at
least 50% should be kept in cash or liquid assest)
Diversify your portfolio.
Invest in Large companies
Conservatively financed i.e. Invest
in companies having current ratio of 2:1
Read about Dividend history of the
Read about Earning history of the
Invest in companies having growth of
at least 3%
Intrinsic value of the company
should be at least 1.5 times.
P/E ratio should be less than 15
4 Qualities of an investor are:
Eagerness to learn
Lots of time
Qualities of an enterprise investor
Going against the market.
Divide your portfolio in 75:25
(instead of 50:50)
Buying stock of companies having a
good growth rate
Buying stocks of companies which are
traded at a lower price
The book takes the form of a fable about Julian Mantle, a high-profile attorney
with a crazy schedule and a set of priorities that center around money, power
and prestige. As such, Mantle represents the values of our society. The story
is told from the perspective of one of his associates, who admires Mantle’s
great success and aspires to be like him.
But when Mantle has a heart attack, he drops
out of the game and disappears. He sells all his possessions and goes to India
to seek a more meaningful existence. When he comes back, he’s a changed man.
Really, it’s as if he’s a completely different person. He’s learned from some
mythical Himalayan gurus who give him mystical and yet practical advice, which
he shares with his former associate (and the reader).
The core of the book is the Seven Virtues of Enlightened Learning, which Mantle
reveals one by one. Now, although the book presents them as actual Virtues
learned from Himalayan gurus, it’s important to remember as you read that these
are made up by the author — actually, he pulled them from other sources and put
master your mind
follow your purpose
live with discipline
respect your time
embrace the present
Each of these Virtues is discussed in some
detail in separate chapters, each of them with a number of concepts and habits
to develop. Most of them are very inspiring and potentially very useful. After
reading the book, I incorporated several of them into my life, including the
ones that involve positive thinking, visualizing goals and more. Again, these
are not new concepts, and have been discussed in many other books, but the book
presents a great collection of useful concepts that you might want to try out.
After reading the book, I began to outline each of the Seven Virtues, because I
was confused about all the action steps the book recommends taking. The truth
is, each of the Seven Virtues encompasses a bunch of daily habits, and
incorporating all of them into your life would be cumbersome. And some of them
seem to me to be conflicting.
As an example of the large number of habits in
every virtue, here are the ones I have listed for the first virtue, Master your
Habit: Find positive in every circumstance; don’t
judge events as “good” or “bad”, but experience them, celebrate them and learn
Habit: The heart of the rose: find a silent place
and a fresh rose. Stare at the heart of the rose, the inner petals,
concentrating on the folds of the flower, the texture, etc … push away other
thoughts that come to you. Start with 5 minutes a day, stretch it to 20. It will
be your oasis of peace.
Habit: 10 minutes of reflection on your day, and
how to improve your next day.
Habit: Opposition thinking – take every negative
thought that comes into your mind and turn it into a positive one. First, be
aware of your thoughts. Second, appreciate that as easily as negative thoughts
enter, they can be replaced with positive ones. So think of the opposite of the
negative ones. Instead of being gloomy, concentrate on being happy and
Habit: Secret of the lake. Take a few deep breaths
and relax. Then envision your dreams becoming a reality. Picture vivid images
of what you want to become. Then they will become reality.
And that’s just with the first virtue. Each
one has a number of habits to develop, and they’re not listed out like I’ve
done here. If you tried to incorporate all of the habits in the book, your day
would be very busy indeed. Also, I would recommend only trying to adopt one at
a time — more than that, and your habit change will be hard to sustain.
This book can be read by a 23 year old college
student who is having pressure of his exams as well as a 43 year old manager
who is really burned out from his work and both will be able to connect to you.
“If there is any one
secret of success it lies in the ability to get the other person’s point of
view and see things from that person’s angle as well as from your own.”—Henry
Ninety-nine times out of a hundred, people don’t criticize
themselves for anything, no matter how wrong it may be.
Criticism is futile because
it puts us on the defensive and usually makes us strive to justify ourselves.
Criticism is dangerous, because it wounds our pride, hurts our sense of
importance, and arouses resentment.
Don’t criticize others;
they are just what we would be under similar circumstances.
Now, let me tell you about
the principles discussed in the book.
Part 1: Fundamental Techniques in Handling People
Principle 1: Don’t criticize, condemn or complain
Principle 2: Give honest and sincere appreciation
Principle 3: Arouse in the other person an eager want
Part 2: Six Ways to Make People Like You
Principle 1: Become genuinely interested in other people
Principle 2: Smile
Principle 3: Remember that a person’s name is to that person the
sweetest and most important sound in any language
Principle 4: Be a good listener
Principle 5: Talk in terms of the other person’s interests
Principle 6: Make the other person feel important—and do it
Part 3: How to Win People to Your Way of Thinking
Principle 1: The only way to get the best of an argument is to
Principle 2: Show respect for the other person’s opinions. Never
say, “You’re wrong.”
Principle 3: If you are wrong, admit it quickly and emphatically
Principle 4: Begin in a friendly way
Principle 5: Get the other person saying, “yes, yes” immediately
Principle 6: Let the other person do a great deal of the talking
Principle 7: Let the other person feel that the idea is his or
Principle 8: Try honestly to see things from the other person’s
point of view
Principle 9: Be sympathetic with the other person’s ideas and
Principle 10: Appeal to the
Principle 11: Dramatize
Principle 12: Throw down a
Part 4: Be a Leader—How to Change People Without Giving Offense or
Principle 1: Begin with praise and honest appreciation
Principle 2: Call attention to people’s mistakes indirectly
Principle 3: Talk about your own mistakes before criticizing the
Principle 4: Ask questions instead of giving direct orders
Principle 5: Let the other person save face
Principle 6: Praise the slightest improvement and praise every
improvement. Be “hearty in your approbation and lavish in your praise.”
Principle 7: Give the other person a fine reputation to live up to
Principle 8: Use encouragement. Make the fault seem easy to
Principle 9: Make the other person happy about doing the thing you
How to keep a disagreement
from becoming an argument:
Welcome the disagreement
Distrust your first instinctive impression
Control your temper
Look for areas of agreement
Promise to think over your opponents’ ideas and study them
Thank your opponents sincerely for their interest
Postpone action to give both sides time to think through the
The effective leader should
keep the following guidelines in mind when it is necessary to change attitudes
Do not promise anything that you cannot deliver. Forget about the
benefits to yourself and concentrate on the benefits to the other person
Know exactly what it is you want the other person to do
Ask yourself what is it the other person really wants
Consider the benefits that person will receive from doing what you
Match those benefits to the other person’s wants
When you make your request, put it in a form that will convey to
the other person the idea that he personally will benefit
You can buy the book How to
win friends and influence people by Dale Carnegie from the following link:
If you like How to Win Friends and Influence People, you may also
enjoy the following books:
• The 7 Habits of Highly Effective People: Powerful Lessons in Personal Change by Stephen R. Covey
• Start with Why: How Great Leaders Inspire Everyone to Take Action by Simon Sinek
• To Sell Is Human: The Surprising Truth About Persuading, Convincing, and Influencing Others by Daniel H Pink.
Rich Dad Poor Dad is about Robert Kiyosaki and his two dads—his real father (poor dad) and the father of his best friend (rich dad)—and the ways in which both men shaped his thoughts about money and investing.
You don’t need to earn a high income to be rich.
Rich people make money work for them.
The poor and the middle-class work for money. The rich have money work for them.
It’s not how much money you make that matters. It’s how much money you keep.
Rich people acquire assets. The poor and middle class acquire liabilities that they think are assets.
Financial aptitude is what you do with money once you make it, how you keep people from taking it from you, how to keep it longer, and how you make money work hard for you.
The single most powerful asset we all have is our mind.
Lesson 1: The Rich Don’t Work for Money
There are two main emotions which can prevent people from developing wealth: fear and desire; fear of not being able to pay monthly expenses or fear of losing money keep many entrenched in the day-to-day work, preventing many from evaluating investments and other sources of income.
The desire to keep up appearances via buying expensive clothes or cars drives expenses so high that people have no choice but to stay focused on their jobs to maintain their lifestyle. Lesson one is all about understanding those two emotions and stopping them from hindering one’s success. The Rich Dad was more focused on ways of creating residual money, money that increases even if you don’t work, rather than waiting for the next job with a pay raise
Lesson 2: Why Teach Financial Literacy?
Developing financial literacy is key to having any success with money. Financial literacy is simply the study of managing one’s finances. Robert Kiyosaki breaks down the basics of financial literacy in order to show the differences in cash flow for different income levels.
There are a few key terms one would need to understand in order to see differences. Income is simply the amount of money you earn (wages, salaries, etc.). Expenses are things like (taxes, food, rent, clothes, fun, and transportation). An asset is something that puts money into your pocket (stocks, bonds, investments). A liability is anything that takes money out of your pocket (home mortgages, loans, credit card debts.)
To put it simply, the rich are able to live well off of the returns from their investments such as stocks and bonds covering any expenses. While a poor person is using the majority of his wages to pay for his prospective living expenses. In order to become wealthy, one must focus on increasing his assets (investments) rather than focusing on increasing his income (pay raises).
Lesson 3: Mind Your Own Business
As mentioned in the previous lesson, the key attribute that must be developed in order to gain wealth is to focus on your asset column. The rich focus on improving the size of their investments rather than simply waiting or demanding pay raises in their income. This means keep your expenses low, reduce your liabilities and diligently build a base of solid assets.
Lesson 4: The History of Taxes and The Power of Corporations
This is the power of limited liability. By creating a personal corporation, the rich are able to avoid many of the personal taxes the poor face through corporate exemption. However, please note the word avoidance compared to evasion! Avoidance simply means using loopholes in tax laws to your advantage where evasion is simply not paying taxes at all, which is illegal.
By filing as a corporation, the rich are able to mitigate their losses to only the amount they invested in the corporation. They are able to pay taxes after they pay for expenses. For people who have jobs, it’s the opposite case where taxes are taken out of paychecks before one is able to cover expenses.
The Rich People with Corporations 1. Earn 2. Spend 3. Pay Taxes
The People who work for Corporations 1. Earn 2. Pay Taxes 3. Spend
Lesson 5: The Rich Invent Money
The idea behind this is that wealth takes a combination of financial intelligence and a little bit of guts. The one thing that holds a lot of people back is some degree of self-doubt. In order to gain wealth, there needs to be a degree of self-confidence. This means investing money outside of the comfort zone. While saving at the bank seems secure, it is not worthwhile because savings rates are often below the rate of inflation. As a Young Jeezy rap lyric once goes, “Scared money don’t make money.” Kiyosaki follows the same logic, if you truly want to see your investments grow exponentially you must be willing to put in the money in places that show relative risk.
Lesson 6: Work to Learn—Don’t Work for Money
A familiar acronym for job is just over broke. Oftentimes, it’s easy to get caught up in a job as a means of security or money. However, the rich use jobs as learning opportunities to develop necessary skills to be successful.
“According to Kiyosaki, real assets fall into the following categories:
Income-generating real estate
Royalties from intellectual property such as music, scripts, and patents
Anything else that has value, produces income or appreciates, and has a ready market”
“Kiyosaki reminds people that financial IQ is made up of knowledge from four broad areas of expertise:
“The main management skills needed for success are:
Management of cash flow
Management of systems
Management of people”
“There are five main reasons why financially literate people may still not develop abundant asset columns that could produce a large cash flow. The five reasons are:
“In the world of accounting, there are three different types of income:
This is a great read especially for the ones new in the field of business or investing. In the initial chapters it starts with the basic difference between the assets and liability which is quite different from the one taught in schools. One criticism which the book has is its focus on real estate which is far more difficult for a beginner investor then explained in the books. I’d recommend this book as an excellent way to challenge your thinking about work and money, but only if you combine it with other books that make tactical recommendations of financial issues because this book doesn’t have many actionable suggestions. I will recommend some other books in the coming articles.