8 Timeless Security Analysis Quotes From Part 1 (Survey & Approach)

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Sep 22, 2010
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As I mentioned in an earlier article, I teamed up with a friend of mine to read Security Analysis. We recently met up to discuss our notes on Part 1 "Survey and Approach" in which Roger Lowenstein adds an Introductions. Below are several quotes I highlighted as I read.

  1. "Avoiding serous loss is a precondition for sustaining a high compound rate of growth" (Lowenstein, p.40)
  2. "Investing is not hard science but a discipline in which both skill and chance play a role." (Lowenstein,p. 42)
  3. "At a price, any security can be a suitable investment,but,to repeat, none is safe merely by virtue of its form." (Lowenstein quoting Graham, p.44)
  4. "Trends carried far enough into the future will yield any desired result." (Lowensteing quoting Graham, p.54)
  5. "But in applying analysis to the field of securities we encounter the serious obstacle that investment is by nature not an exact science." (Graham, p.61)
  6. "The essential point (of intrinsic value) is that security analysis does not seek to determine exactly what is the intrinsic value of a given security. It needs only to establish either that the value is adequate -e.g., to protect a bond or to considerable lower than the market price. For such purposes an indefinite and approximate measure o f the intrinsic value may be sufficient." (Graham, p.66)
  7. "It is quite possible to decide by inspection that a woman is old enough to vote without knowing her age or that a man is heavier than he should be without knowing his weight." (Graham , p.66)
  8. "In the field of common stocks, the necessity of taking price into account is more compelling, because the danger of paying the wrong price is almost as great as that of buying the wrong issue." (Graham, p.77)
Quotes 6&7 are timeless in my opinion due to investors relying heavily on discounted cash flows to try to pinpoint the intrinsic value of an equity. I stopped using discounted cash flows and focused more on something current such as earnings yield or free cash flow yield. True, earnings yield doesn't take into the account the possibility of earnings spiraling downwards due to unforseen events, but that's where security analysis comes into play to determine the true earnings power of a business.
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