The Intelligent Investor by Benjamin Graham

To be a successful investor, you need two things.

• A framework for making investment decisions.
• An ability to keep your emotions in check.

If you want to pick stocks for the intellectual challenge, then Graham's investing framework can significantly help.

• If your investment horizon is at least 25 or 30 years—there is only one sensible approach: Invest in a diversified low-cost index fund every month.
• The whole point of investing is not to earn more than average but to earn enough money to meet your needs.
• Measure your investing success not by what you make, but by how much you keep after inflation.
• Have two accounts. One for investment and one for speculation. Doing both from the same account will delude you into thinking you're investing when speculating.
• Invest 90% of the money in an index fund to create your investment foundation and experiment with a balance of 10%.
• Allocate a maximum of 75% to stocks.
• Allocate a minimum of 25% to bond: A minimum of 25% bond is sufficient to support your portfolio even when the market crashes. A 50-50 stock bond split or allocating bonds for 100 - your age would severely impact your returns when the investment horizon is over 20 years.
• Diversification is the easiest and most cost-effective way to increase the margin of safety. It reduces the risk of being wrong and improves the chances of being right.
• Own between 10 to 30 diversified stocks with a higher likelihood of profit than loss.
• Reserve some amount of cash.
• We invest in the present, but we invest for the future. Choose industries that are most likely to grow and identify promising companies.
• Avoid overexposure to one sector.
• Narrow down to companies with a long record of profitable operations that generate more cash than they consume.
• Read at least the last five years' annual reports before buying a stock.
• Never buy a stock immediately after a substantial rise or sell one immediately after a significant drop.
• Avoid companies with high projected growth rates. A company can be a giant or deserve a giant P/E ratio, but not both.
• Avoid companies which pay no income tax since it raises questions about reported earnings.
• Prefer companies that build their businesses from within rather than through acquisition funded by debt.
• Prefer companies that buy back their shares when they are cheap not when they are at all time highs.
• Good management is one that allocates capital wisely; and do not pay themselves hundred-million-dollar of stock options.
• If you live, work in US and earn in the U.S dollar, you are already financial tied to the U.S. economy. It’s risky to keep all your money in one country. Eg Japan. To be safe, diversify some of your investments internationally.
• Investing in your company's stock isn't risk free since you know the business more than an outsider. Eg: Enron, worldCom.
• Never buy into a lawsuit.
• No matter how good its products or how powerful its brands, a company must spend some money to develop new business.
• Repeated selling by the insiders without a valid reason is a bright red flag.
• Company executives should say what they will do, then do what they said.
• Risk in investment can be managed, but can't be avoided.
• Characteristics of a bull market (1) a historically high price level, (2) high price/earnings ratios, (3) low dividend yields as against bond yields, (4) much speculation on margin, and (5) many offerings of new common-stock issues of poor quality.

Margin of safety

The current stock price reflects not only the past but also reasonably formed expectations of the future.

The function of the margin of safety is, in essence, that of rendering unnecessary an accurate estimate of the future.

Every stock is a bargain at some point and expensive at another. While there are good and bad companies, no stock is inherently good—only its price matters, and good prices come and go.

The value of any investment is, and always must be, a function of the price you pay for it. A great company is not a great investment if you pay too much for the stock.

Many security analysts make the fundamental mistake of buying companies with the best management and growth prospects at any price. They avoid less promising companies no matter how low the price may be.

The margin of safety is always dependent on the price paid. By refusing to pay too much for an investment, you minimize the chance of losing your wealth.

If you have formed a conclusion from the facts and if you know your judgment is sound, act on it— even though others may hesitate or differ.” (You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning are right.) Similarly, in the world of securities, courage becomes the supreme virtue after adequate knowledge and a tested judgment are at hand. In investing, as with life in general, ultimate victory usually goes to the doers, not to the talkers.

Without bear markets, anyone waiting to "buy low" will feel left behind. Unless the investor has emotional discipline, they are more likely to jump back in with both feet, ignoring their investment framework. Invest only if you see the margin of safety else, refrain.