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 is not in The Intelligent Investor nor Security Analysis. I will be going through all ten lectures and releasing them over the next few days. To see Part I click here.
The Rediscovered Benjamin Graham Lectures – 2
In the second part of Benjamin Graham’s lectures, he stresses the importance of finding and understanding the true value of the reported earnings. He explains the balance sheet method of calculating true earnings over a period of time, which is far more important (or at least truthful) in determining value than what is reported.
Graham is able to show in a great example how investors are able to be misled if they only look at specific metrics. He compares two major (at the time) companies, and is able to show that the earnings reports are actually misleading if you only look at the numbers given. By taking all of the operating activities into play as well as adding back in all of the dividends that a company had paid out over a set time period, however, one can tell the true value of earnings that a given company had produced over time.
Graham then spends some time actually allowing questions and provoking discussion amongst his audience, in which they clearly understand the basics of his argument points. While his points are very interesting, it appears in this lecture that he actually draws examples of Curtiss-Wright and the previous lecture again. Obviously some information is important enough in some of his recurring themes to cite, but it does seem that a good deal of this lecture was continuing to show the difference in reported earnings versus (what he refers to as) true earnings.
He is able to channel a thought provoking mindset, however, as he does raise some very good questions to his audience. By simply looking at the depreciation and tax numbers of a company (Denver), he is able to demonstrate that the reported numbers do not necessarily reflect the current operations correctly. By looking at the higher level of depreciation and taxes that Denver had to pay, one could easily assume at first glance that Denver’s lower reported earnings were due to the fact that they paid a far greater amount of taxes and depreciation.
However, when Graham takes a look even farther, he is able to discover that Denver actually paid a higher amount in 1945 in both depreciation and taxes rather than receiving a benefit in their income taxes for charging more than 250% times their depreciation rate for 1944. He goes further into detail of why this number appears so high when the company apparently did worse in terms of earnings. He also continues to show that both the tax and depreciation numbers are not necessarily an immediate reflection upon the current operations at hand, but rather both numbers were carried over from previous years.
While in his specific example he cannot account for every number in their entirety, he is still able to show that the reported numbers are manipulative and can misguide even the smartest investor if they don’t also do their research on the entire company. The numbers are a reflection of the decisions of the company over a great deal of years (especially when the depreciation and tax numbers were carried forward), and do not represent the current state of the company in its entirety.
Full link-_http://www.wiley.com/legacy/products/subject/finance/bgraham/benlec2.html
http://www.valuewalk.com/
This is great information that is not in The Intelligent Investor nor Security Analysis. I will be going through all ten lectures and releasing them over the next few days. To see Part I click here.
The Rediscovered Benjamin Graham Lectures – 2
In the second part of Benjamin Graham’s lectures, he stresses the importance of finding and understanding the true value of the reported earnings. He explains the balance sheet method of calculating true earnings over a period of time, which is far more important (or at least truthful) in determining value than what is reported.
Graham is able to show in a great example how investors are able to be misled if they only look at specific metrics. He compares two major (at the time) companies, and is able to show that the earnings reports are actually misleading if you only look at the numbers given. By taking all of the operating activities into play as well as adding back in all of the dividends that a company had paid out over a set time period, however, one can tell the true value of earnings that a given company had produced over time.
Graham then spends some time actually allowing questions and provoking discussion amongst his audience, in which they clearly understand the basics of his argument points. While his points are very interesting, it appears in this lecture that he actually draws examples of Curtiss-Wright and the previous lecture again. Obviously some information is important enough in some of his recurring themes to cite, but it does seem that a good deal of this lecture was continuing to show the difference in reported earnings versus (what he refers to as) true earnings.
He is able to channel a thought provoking mindset, however, as he does raise some very good questions to his audience. By simply looking at the depreciation and tax numbers of a company (Denver), he is able to demonstrate that the reported numbers do not necessarily reflect the current operations correctly. By looking at the higher level of depreciation and taxes that Denver had to pay, one could easily assume at first glance that Denver’s lower reported earnings were due to the fact that they paid a far greater amount of taxes and depreciation.
However, when Graham takes a look even farther, he is able to discover that Denver actually paid a higher amount in 1945 in both depreciation and taxes rather than receiving a benefit in their income taxes for charging more than 250% times their depreciation rate for 1944. He goes further into detail of why this number appears so high when the company apparently did worse in terms of earnings. He also continues to show that both the tax and depreciation numbers are not necessarily an immediate reflection upon the current operations at hand, but rather both numbers were carried over from previous years.
While in his specific example he cannot account for every number in their entirety, he is still able to show that the reported numbers are manipulative and can misguide even the smartest investor if they don’t also do their research on the entire company. The numbers are a reflection of the decisions of the company over a great deal of years (especially when the depreciation and tax numbers were carried forward), and do not represent the current state of the company in its entirety.
Full link-_http://www.wiley.com/legacy/products/subject/finance/bgraham/benlec2.html
http://www.valuewalk.com/
