The Most Important Paragraph Ever Written on Investing

What Does Intelligence in The Intelligent Investor Mean?

Dec 07, 2024

A month ago, I listened to a podcast featuring Jason Zweig and Vishal Khandelwal.

Zweig, known for commentary on the classic The Intelligent Investor, shared an interesting insight.

When he wrote the second edition, he considered one paragraph the most important in the book. However, after 21 years, in the latest edition, he now believes this paragraph is the most important one ever written on investing.

So, I decided to read it for myself and break it down.

Here’s the paragraph, quoted directly from the book:

But note this important fact: The true investor scarcely ever is forced to sell his shares, and at all other times he is free to disregard the current price quotation. He need pay attention to it and act upon it only to the extent that it suits his book, and no more. Thus the investor who permits himself to be stampeded or unduly worried by unjustified market declines in his holdings is perversely transforming his basic advantage into a basic disadvantage. That man would be better off if his stocks had no market quotation at all, for he would then be spared the mental anguish caused him by other persons’ mistakes of judgment.

Before moving forward, first let’s understand who Mr. Market is?

As Jason Zweig put it:

Graham invented a character called Mr. Market, a mythical figure who goes wild with greed and euphoria when stocks go up but wallows in fear and misery when stocks go down. The intelligent investor is a realist who sells to optimists and buys from pessimists. You must never let your emotions be taken hostage by Mr. Market’s mood swings.

The true investor will:

Never Forced Sell: Establish a position where they are never forced to sell shares.
Ignore Market Quotations: Stay aware of Mr. Market’s emotions and mood swings, exercising the right to ignore market prices most of the time.

1) Forced Selling: A Trap for the Unprepared

Forced selling occurs during market crashes when doubt clouds your judgment, and groupthink drives panic.

A is panicking, so is B; since I’m human too, I should panic as well.

Someone else may panic because they bought stocks from borrowed money or faced margin calls - a call to return the borrowed money.

If you avoid debt, maintain an emergency fund, and plan for market downturns, you'll have fewer reasons to panic.

2) Ignoring Market Quotations

“He should always remember that market quotations are there for his convenience, either to be taken advantage of or to be ignored.”
— The Intelligent Investor, Ben Graham

The market is full of noise—emotional swings of fear, greed, and panic. Your job as an investor is to tune out most of it. You can avoid it by safely disregarding market price and only participate when it serves your investing goals.

“Investing is a wonderful laboratory for self-improvement.”
— Jason Zweig

The Basic Advantage

The first and foremost basic advantage of an individual investor is that he has given the right to buy or sell a stock, but he is under no obligation to do so. It’s his will.

He can ignore the market prices most of the time, and act only when Mr. Market is driven by emotions like fear, greed, or panic—creating opportunities to capitalize on human misjudgment.

By adopting this approach, he maintains independence, avoids herd behavior, and establishes himself as an intelligent investor with superior judgment.

A true investor is not worried about unjustified market prices; he welcomes them.

In essence, the right to buy or sell—but not the obligation—is the basic advantage of an investor.

Why it is our basic advantage?

Because this advantage gives individual investors a clear edge over institutions.

As Nassim Taleb says, options are often more valuable than intelligence—and many of these options are free. Here’s how individual investors have the upper hand:

Act on Your Terms: Professionals often buy during market highs and sell during lows due to client pressures. You can avoid this mistake and do the opposite.
Flexibility with Losses: Institutions sell losing stocks to avoid criticism. You can hold them if you believe they’ll recover.
Freedom to Hold: Institutions may sell growing small-cap stocks due to rules. You can hold them as long as you want.
No Market Impact: Institutions trade in huge quantities, moving prices against themselves. Your smaller trades won’t affect stock prices.
No External Pressure: Institutions must answer to clients, media, and have to maintain their reputation. You have to answer only to yourself, allowing you to be as unconventional as you wish.
Lower Costs: You avoid management fees and can hold cash whenever you choose, giving you more control and flexibility.

These advantages provide a meaningful edge over institutions, if used wisely.

How To Turn Your Basic Advantage Into Your Basic Disadvantage?

Your basic advantage becomes a disadvantage when the right to act turns into a compulsion to act.

If you buy because everyone else is buying—or sell because everyone else is selling—you lose your independence.

You trade your position as an intelligent investor for a seat with the crowd.

Modern tools like instant trading make this worse. While helpful for traders, these tools tempt long-term investors into impulsive, unnecessary actions that weaken their investing discipline.

Remember: More freedom isn’t always more freedom. It can be a trap.

To get your advantage back, you must distinguish between options and obligations. You are under no obligation to do what market is doing—and that's your edge.

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Solution: Maintaining Your Independence

“The biggest challenge of an investor is to maintain your independence.”
— Ben Graham

Investing is about self-discipline.

Every day is a test.

Mr. Market appears daily trying to take your individuality, trying to make you one of the crowd, trying to erase who you are as a person.

Your role is not to let the market tell you what to do.

Your role is to do what is right based on your facts and circumstances.

To maintain your independence, your investing must be systematic and methodical:

→ Have a checklist.

→ Develop a set of questions to evaluate investments.

→ Establish rules and procedures that align with your investment goals.

→ Document your reasoning behind each investment decision to learn from outcomes and refine your process.

This approach will help you develop superior judgment while minimizing emotional misjudgments.

On top of that, if you can place yourself in an environment where people embrace the same principles as you do — deferred gratification, long-term outcomes and safeguarding their individuality — you will distance yourself from the mistakes of the crowd.

To maintain independence, your decisions must be rooted in systems, mental models, and rational thinking—not the collective emotions of the crowd.

Maintaining the independence is the single most important thing you can do as an individual investor.

Key Takeaways

1. Avoid forced selling.

2. Ignore market prices most of the time.

3. Act only when prices align with your goals.

4. Know your basic advantage as an individual investor.

5. Your advantage: the right to act, not the obligation.

6. Avoid turning advantage into disadvantage.

7. Your disadvantage: when right to act turns into compulsion to act.

8. Avoid herd behavior.

9. Maintain your independence.

10. Investing is a wonderful laboratory for self-improvement.