I discovered some great lectures from Benjamin Graham when he was a professor at Columbia University. There are a total of ten lectures which are from Graham's class in 1946. I summarized the main points of each and something new I learned from it.
This is great information that you will not read in either The Intelligent Investor or Security Analysis. I will be going through all ten lectures and releasing them over the next few days. To see Part I click here, to see part II click here http://www.gurufocus.com/news.php?id=119551, part III is here: http://www.gurufocus.com/news.php?id=119662
The Rediscovered Benjamin Graham Lectures – 4
In the fourth part of Benjamin Graham’s ongoing series, he starts by speaking more about a strategy in which you would purchase undervalued stocks for success in a given market as related to the Dow Jones Industrial Average. And, interestingly enough, he points out that while the specific investment plan is dependent mostly upon what the investor himself wishes to pursue (and to stomach), that an investor should actually have no major problems or issues with continuing to try and purchase stock of undervalued companies, even in a down market. Part of this reason is related to the fact that it is in bear markets that stocks sell at a discount compared to their actual worth.
Graham then leads the discussion into the topic of future earnings. He specifically touches on the issue of earning power in the sense that it should either be used as past earning power or future earning power, but never just earning power in order to avoid confusion. He suggests that future earning power be used to classify expected earnings over a set period of time (preferring 5 years).
Graham then demonstrates the riskiness associated with the valuation of specific stocks when looking at future earnings by listing the analysis that he did in 1939. At the time, they had two different companies with the same earnings per share over the last five years, but one stock was selling at $14.00 and the other was selling at $140.00. The point is that how could anyone have predicted two companies with the same earnings per share to have a values that were different by a factor of ten in only five years’ worth of time? The point Graham stresses is that anyone could predict a company’s value over an almost infinite time period. And, even if the time period is infinite, the entire company and industry could be dissolved in a decade, so why calculated value based upon earnings for 20, 30, or 40 years from now?
It should be at least taken into account, that the past earnings will in some way influence the future earnings for a given stock. However, he also shows that through past movements over a set period of time, industries widely fluctuate due to either market or even global conditions in general. Obviously the conditions in a specific company could vary even more than that of an entire industry as well. But, that being said, it is still much more important and accurate to at least take predictions for future estimations of earnings from a tangible number rather than just making one up in order to satisfy trends.
Finally, the lecture ends as Graham continues to take questions from his audience about different ways of valuation, different specifics as they related to his examples, and even listing specifics on SEC valuation. However, the main point of this discussion is to stress the importance of understanding a reasonable and rational future valuation for a period of time and not just making up numbers that seem to fit.
http://www.wiley.com/legacy/products/subject/finance/bgraham/benlec4.html
This is great information that you will not read in either The Intelligent Investor or Security Analysis. I will be going through all ten lectures and releasing them over the next few days. To see Part I click here, to see part II click here http://www.gurufocus.com/news.php?id=119551, part III is here: http://www.gurufocus.com/news.php?id=119662
The Rediscovered Benjamin Graham Lectures – 4
In the fourth part of Benjamin Graham’s ongoing series, he starts by speaking more about a strategy in which you would purchase undervalued stocks for success in a given market as related to the Dow Jones Industrial Average. And, interestingly enough, he points out that while the specific investment plan is dependent mostly upon what the investor himself wishes to pursue (and to stomach), that an investor should actually have no major problems or issues with continuing to try and purchase stock of undervalued companies, even in a down market. Part of this reason is related to the fact that it is in bear markets that stocks sell at a discount compared to their actual worth.
Graham then leads the discussion into the topic of future earnings. He specifically touches on the issue of earning power in the sense that it should either be used as past earning power or future earning power, but never just earning power in order to avoid confusion. He suggests that future earning power be used to classify expected earnings over a set period of time (preferring 5 years).
Graham then demonstrates the riskiness associated with the valuation of specific stocks when looking at future earnings by listing the analysis that he did in 1939. At the time, they had two different companies with the same earnings per share over the last five years, but one stock was selling at $14.00 and the other was selling at $140.00. The point is that how could anyone have predicted two companies with the same earnings per share to have a values that were different by a factor of ten in only five years’ worth of time? The point Graham stresses is that anyone could predict a company’s value over an almost infinite time period. And, even if the time period is infinite, the entire company and industry could be dissolved in a decade, so why calculated value based upon earnings for 20, 30, or 40 years from now?
It should be at least taken into account, that the past earnings will in some way influence the future earnings for a given stock. However, he also shows that through past movements over a set period of time, industries widely fluctuate due to either market or even global conditions in general. Obviously the conditions in a specific company could vary even more than that of an entire industry as well. But, that being said, it is still much more important and accurate to at least take predictions for future estimations of earnings from a tangible number rather than just making one up in order to satisfy trends.
Finally, the lecture ends as Graham continues to take questions from his audience about different ways of valuation, different specifics as they related to his examples, and even listing specifics on SEC valuation. However, the main point of this discussion is to stress the importance of understanding a reasonable and rational future valuation for a period of time and not just making up numbers that seem to fit.
http://www.wiley.com/legacy/products/subject/finance/bgraham/benlec4.html
