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 – 9
In the 9th part of Benjamin Graham’s lecture series, he starts off by speaking about the New Amsterdam Casualty case. New Amsterdam Casualty is said to be a company that is interesting for multiple reasons, but one of which is that it is completely profitable as a fully functioning unit while also having a high breakup value as well.
In this specific case Graham states that the stockholders are actually suffering from the opposite of the all to heard of waste of assets, and that the company is actually not doing their best job to gather all of the assets and avoid paying out earnings.
Next Graham goes into a few great points about whether it is management’s duty to retain all earnings within the company, or it is more beneficial for the individual investors to receive a dividend of their fair value. Graham claims that Wall Street favors those companies which pay out dividends, and yet Amsterdam is a perfect example of how not to pay out adequate dividends. After comparing the company to a few others, he shows that Amsterdam is paying out the same dividends yet has far higher earnings than the other companies in comparison.
Graham then finds a company (U.S. Fidelity and Guarantee) that is very comparable across many different measures which is paying out 2 dollars per share in dividends to Amsterdam’s 1 dollar per share. The difference here is that Fidelity has been selling at $45 per share while Amsterdam has been closer to $27 per share.
The owners and management of Amsterdam claim that they price dividends at the stated rate for three reasons. The first of which is conservatism and not wanting to bleed out the earnings. The second is one that Graham says any and every business will claim in that the company is special. Amsterdam claims that they still need to do better in order to achieve the desired results and cannot continue to spread out the earnings until their model is stable. And third, the management claims that the stockholders do not understand the specifics and problems of the business itself as well as the managers do, so why should they think that they know what level of dividend is the best choice?
Graham is able to counter by saying if stockholders accepted that answer, then the managers should be able to answer that way for every issue that occurred in the company whether it was legal, sales, production, market related, etc. If no one knows as much as the managers do, then no one should be able to question management. This would be a complete rejection of the idea that managers work for the stockholders of the company.
Graham then speaks of the primary issue as being the pure questioning of dividend policy. He states that he knows how well the management of Amsterdam is actually able to run the company, and therefor he is not questioning their motives or ability, but only the policy on dividends. Therefore (while it will probably never happen entirely) Graham claims that it is up to the individual stockholders to educate themselves on the matter of dividend policy well enough that they could actually determine the policy themselves.
Part I click here,
part II click here: http://www.gurufocus.com/news.php?id=119551,
Part III is here: http://www.gurufocus.com/news.php?id=119662,
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
Part VII is here: http://www.gurufocus.com/news.php?id=119985
Part VIII is here: http://www.gurufocus.com/news.php?id=120051
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 – 9
In the 9th part of Benjamin Graham’s lecture series, he starts off by speaking about the New Amsterdam Casualty case. New Amsterdam Casualty is said to be a company that is interesting for multiple reasons, but one of which is that it is completely profitable as a fully functioning unit while also having a high breakup value as well.
In this specific case Graham states that the stockholders are actually suffering from the opposite of the all to heard of waste of assets, and that the company is actually not doing their best job to gather all of the assets and avoid paying out earnings.
Next Graham goes into a few great points about whether it is management’s duty to retain all earnings within the company, or it is more beneficial for the individual investors to receive a dividend of their fair value. Graham claims that Wall Street favors those companies which pay out dividends, and yet Amsterdam is a perfect example of how not to pay out adequate dividends. After comparing the company to a few others, he shows that Amsterdam is paying out the same dividends yet has far higher earnings than the other companies in comparison.
Graham then finds a company (U.S. Fidelity and Guarantee) that is very comparable across many different measures which is paying out 2 dollars per share in dividends to Amsterdam’s 1 dollar per share. The difference here is that Fidelity has been selling at $45 per share while Amsterdam has been closer to $27 per share.
The owners and management of Amsterdam claim that they price dividends at the stated rate for three reasons. The first of which is conservatism and not wanting to bleed out the earnings. The second is one that Graham says any and every business will claim in that the company is special. Amsterdam claims that they still need to do better in order to achieve the desired results and cannot continue to spread out the earnings until their model is stable. And third, the management claims that the stockholders do not understand the specifics and problems of the business itself as well as the managers do, so why should they think that they know what level of dividend is the best choice?
Graham is able to counter by saying if stockholders accepted that answer, then the managers should be able to answer that way for every issue that occurred in the company whether it was legal, sales, production, market related, etc. If no one knows as much as the managers do, then no one should be able to question management. This would be a complete rejection of the idea that managers work for the stockholders of the company.
Graham then speaks of the primary issue as being the pure questioning of dividend policy. He states that he knows how well the management of Amsterdam is actually able to run the company, and therefor he is not questioning their motives or ability, but only the policy on dividends. Therefore (while it will probably never happen entirely) Graham claims that it is up to the individual stockholders to educate themselves on the matter of dividend policy well enough that they could actually determine the policy themselves.
Part I click here,
part II click here: http://www.gurufocus.com/news.php?id=119551,
Part III is here: http://www.gurufocus.com/news.php?id=119662,
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
Part VII is here: http://www.gurufocus.com/news.php?id=119985
Part VIII is here: http://www.gurufocus.com/news.php?id=120051
http://www.valuewalk.com/
