The Intelligent Investor - The Definitive Book On Value Investing

COMMENTARY ON CHAPTER

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

Notice that Graham announces from the start that this book will not

tell you how to beat the market. No truthful book can.

Instead, this book will teach you three powerful lessons:

• 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.

Back in the boom years of the late 1990s, when technology stocks

seemed to be doubling in value every day, the notion that you could

lose almost all your money seemed absurd. But, by the end of 2002,

many of the dot-com and telecom stocks had lost 95% of their value

or more. Once you lose 95% of your money, you have to gain 1,900%

just to get back to where you started.^1 Taking a foolish risk can put

you so deep in the hole that it’s virtually impossible to get out. That’s

why Graham constantly emphasizes the importance of avoiding

losses—not just in Chapters 6, 14, and 20, but in the threads of warn-

ing that he has woven throughout his entire text.

But no matter how careful you are, the price of your investments

willgo down from time to time. While no one can eliminate that risk,

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(^1) To put this statement in perspective, consider how often you are likely to
buy a stock at $30 and be able to sell it at $600.