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 the previous articles on this topic go to the bottom of the article.
The Rediscovered Benjamin Graham Lectures – 7
In Benjamin Graham’s 7th part of his 10 part series of lectures, Graham jumps right into evaluating the individual components that make up the Dow Jones Industrial Average. He speaks of a study done by Charles J. Collins which was done immediately after the war and more or less comes to the conclusion that Collins’ estimates are still considered accurate and acceptable but they are calculated differently.
The variation between Graham’s and Collins’ calculated future earnings can be explain by the period of time for which earnings was calculated (Graham takes into account the pre-war fluctuation whereas Collins is calculating his earnings during the highly active post war period). Different profit margins used during the calculations also explain a major difference between the numbers estimated by both Graham and Collins. Graham also states that another major difference in the calculations of future earnings were that he had used a higher national income as well as a lower income tax as compared to Collins’ calculations and estimates.
The numbers found by both Collins’ and Graham are both correct estimates, they only differ in the level of how conservative the inputs were. Graham uses this as a strong teaching point to suggest that even with such differing estimates, neither is wrong and that there really is no exact way to calculate future earnings correctly.
Graham then moves on to speak about how an analyst actually operates in specific regards to conventional or complimentary approaches. Conventional is in regards to investing in “good stocks,” “growth stocks,” or investing in stocks that have upside in the short term. Complimentary is meant to mean purchasing stocks when the market is at a low level or when a stock itself is at a low level (as compared to the analyzed value).
As far as buying “good stocks” is concerned, it really is a simple concept. You must do your research and ensure that the stock is of a good company that you can trust, and also that the stock itself is trading within reason. To invest in growth stocks, one must select a company in which growth can be realized, and also that the market itself hasn’t discounted the ability for growth. Graham quickly touches on the third part of the conventional approach which he says is done in a day by day approach of simply determining what companies and industries look to be poised for success in the future. This third part is a constantly ongoing operation.
Graham doesn’t seem to fully trust the third option in conventional investing because it is largely associated with simple speculation. If an analyst is able to find some information on a stock that he or she thinks could bring value, then the analyst is able to speculate whether or not the stock should be bought. It is for this very reason (along with some others) that Graham concludes this lecture by stating if you want to be a fair and true analyst that you should continue to make recommendations and investments based upon real projections and statistics. You cannot help but to be wrong sometimes in choosing your investments, but at least you will be able to have a clear plan and proof as compared to going on gut feelings and recommendations based upon no numbers.
Part I click here, to see part II click herehttp://www.gurufocus.com/news.php?id=119551, part III is here:http://www.gurufocus.com/news.php?id=119662, and part IV is here:http://www.gurufocus.com/news.php?id=119707. Part V is here http://www.gurufocus.com/news.php?id=119765 PartVI is here _http://www.gurufocus.com/news.php?id=119848
http://www.valuewalk.com/
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 the previous articles on this topic go to the bottom of the article.
The Rediscovered Benjamin Graham Lectures – 7
In Benjamin Graham’s 7th part of his 10 part series of lectures, Graham jumps right into evaluating the individual components that make up the Dow Jones Industrial Average. He speaks of a study done by Charles J. Collins which was done immediately after the war and more or less comes to the conclusion that Collins’ estimates are still considered accurate and acceptable but they are calculated differently.
The variation between Graham’s and Collins’ calculated future earnings can be explain by the period of time for which earnings was calculated (Graham takes into account the pre-war fluctuation whereas Collins is calculating his earnings during the highly active post war period). Different profit margins used during the calculations also explain a major difference between the numbers estimated by both Graham and Collins. Graham also states that another major difference in the calculations of future earnings were that he had used a higher national income as well as a lower income tax as compared to Collins’ calculations and estimates.
The numbers found by both Collins’ and Graham are both correct estimates, they only differ in the level of how conservative the inputs were. Graham uses this as a strong teaching point to suggest that even with such differing estimates, neither is wrong and that there really is no exact way to calculate future earnings correctly.
Graham then moves on to speak about how an analyst actually operates in specific regards to conventional or complimentary approaches. Conventional is in regards to investing in “good stocks,” “growth stocks,” or investing in stocks that have upside in the short term. Complimentary is meant to mean purchasing stocks when the market is at a low level or when a stock itself is at a low level (as compared to the analyzed value).
As far as buying “good stocks” is concerned, it really is a simple concept. You must do your research and ensure that the stock is of a good company that you can trust, and also that the stock itself is trading within reason. To invest in growth stocks, one must select a company in which growth can be realized, and also that the market itself hasn’t discounted the ability for growth. Graham quickly touches on the third part of the conventional approach which he says is done in a day by day approach of simply determining what companies and industries look to be poised for success in the future. This third part is a constantly ongoing operation.
Graham doesn’t seem to fully trust the third option in conventional investing because it is largely associated with simple speculation. If an analyst is able to find some information on a stock that he or she thinks could bring value, then the analyst is able to speculate whether or not the stock should be bought. It is for this very reason (along with some others) that Graham concludes this lecture by stating if you want to be a fair and true analyst that you should continue to make recommendations and investments based upon real projections and statistics. You cannot help but to be wrong sometimes in choosing your investments, but at least you will be able to have a clear plan and proof as compared to going on gut feelings and recommendations based upon no numbers.
Part I click here, to see part II click herehttp://www.gurufocus.com/news.php?id=119551, part III is here:http://www.gurufocus.com/news.php?id=119662, and part IV is here:http://www.gurufocus.com/news.php?id=119707. Part V is here http://www.gurufocus.com/news.php?id=119765 PartVI is here _http://www.gurufocus.com/news.php?id=119848
http://www.valuewalk.com/
