“Maximizing Returns with Sound Investment Strategies”

Insights from The Intelligent Investor (Chapters 13, 14, 15)

RedFate
5 min readFeb 2, 2023

--

Chapter 13: The Common-Stock Fund

As an individual investor, investing in a common-stock fund can be a smart way to gain exposure to the stock market. These funds offer a diversified portfolio of stocks at a low cost, without the need for a large investment. The funds are managed by professional money managers who have access to resources and analysis that individual investors may not have access to.

For defensive investors who want exposure to the stock market but don’t have the time or resources to conduct individual stock analysis, common-stock funds can be a good investment. On the other hand, for enterprising investors who want to take advantage of market fluctuations to buy undervalued securities or sell overvalued securities, common-stock funds can also be a good investment.

However, it’s important for investors to be aware of fees and charges associated with common-stock funds and how they can impact returns over time. Additionally, investors should be aware of potential high turnover and capital gains taxes in some common-stock funds. Before investing, it’s crucial to conduct due diligence on the fund’s management, investment strategy, and performance.

For example, consider the Vanguard 500 Index Fund, a popular common-stock fund. This fund offers a low-cost option for investors to gain exposure to the S&P 500, a broad market index that represents the performance of the US stock market. The Vanguard 500 Index Fund is managed by professionals who aim to replicate the performance of the S&P 500, and the fund’s low expense ratio and passively managed approach makes it a popular option for cost-conscious investors.

In conclusion, common-stock funds can be a smart investment for individual investors looking for a low-cost and well-diversified option for investing in the stock market. However, it’s important to be aware of fees, taxes, and the fund’s management and investment strategy before investing.

Chapter 14: The relationship between the investor and the company

It is important for investors to understand the responsibilities and obligations of the companies they invest in, as well as their rights and protections as shareholders. The following are some key lessons from chapter 14, along with modern examples and scenarios to implement these lessons.

  1. Understanding Company Responsibilities and Obligations: Investors should be aware of the responsibilities of the companies they invest in, including the responsibilities of management and the board of directors. A good example of this is the recent scandal involving Volkswagen and the company’s responsibility to properly report emissions data. By understanding the responsibilities of the company, investors can make informed decisions about whether or not to invest in the company.
  2. Awareness of Shareholder Rights and Protections: Investors should be aware of their rights and protections as shareholders, including the right to vote on corporate matters and receive dividends. An example of this is the recent activism by shareholders of companies like Amazon and Exxon Mobil, who are advocating for the companies to be more socially responsible and environmentally sustainable. By understanding their rights as shareholders, investors can take an active role in promoting corporate accountability.
  3. Corporate Governance and Independent Directors: Investors should be aware of the role of corporate governance and the importance of independent directors and oversight committees. A good example of this is the role of independent directors on the board of Tesla, who are responsible for overseeing the actions of management and ensuring that the company is operating in the best interests of shareholders. By understanding the role of corporate governance, investors can make informed decisions about the companies they invest in.
  4. Active Exercise of Shareholder Rights: Investors should actively exercise their rights as shareholders, including attending annual meetings and voting on corporate matters. An example of this is the recent shareholder activism at companies like Goldman Sachs, where investors are pushing for the company to be more socially responsible and to address issues such as income inequality. By actively exercising their rights as shareholders, investors can promote accountability and responsibility within the companies they invest in.
  5. Corporate Activism and Shareholder Activism: Investors should be aware of the potential for corporate activism and the role of shareholder activism in promoting corporate accountability and social responsibility. An example of this is the recent activism by environmental and social justice groups, who are advocating for companies to be more sustainable and to address issues such as climate change. By understanding the role of corporate and shareholder activism, investors can make informed decisions about the companies they invest in and can help promote responsible and sustainable business practices.

Chapter 15: The Investor and His Relations with the Public and the Government

As an investor, it is important to understand the impact of government and public policy on the economy and stock market. This knowledge will help you make informed investment decisions. Let’s take a look at how this can play out in real life.

For example, imagine you are considering investing in the pharmaceutical industry. You might want to research the potential impact of government regulation on drug pricing and insurance coverage. If there are policy changes in the works that could negatively impact the industry, you would want to weigh these potential risks against the potential rewards of investing in that sector.

Another example to consider is the potential impact of political and social issues on the economy and stock market. In recent years, the rise of socially responsible investing has led many investors to consider the social impact of their investments, such as the environmental impact of a company’s operations. If you are an investor who is concerned about climate change, for instance, you may want to research companies that are taking steps to reduce their carbon footprint and support sustainable practices.

In addition to considering the impact of government and public policy, it is important to be aware of macroeconomic factors, international events, media, and public perception. For example, the COVID-19 pandemic has had a significant impact on the global economy, causing widespread stock market volatility. Investors who were aware of the potential impact of the pandemic on the economy and stock market were better able to make informed investment decisions.

In conclusion, by being aware of the role of the government and public policy in the economy and stock market, and considering potential political and social issues, macroeconomic factors, international events, media, and public perception, investors can make informed investment decisions that align with their goals and values.

--

--

RedFate

Hi, welcome. Here I write about investing, philosophy and the various lessons I've learnt from the books I read. Let me know if you have any requests.