Benjamin Graham is best known for his best-selling book, "The Intelligent Investor." This was not his most informative text, however. Many years before "The Intelligent Investor" was published, Graham wrote "Security Analysis" with his partner, David Dodd.
Although it may not seem like it today, "Security Analysis" was groundbreaking when it was first released because it was the first real text to properly address the topic of security analysis from a financial perspective. Even though the book is more than eight decades old, it is still packed full of insight for investors. The book is highly worth a read if you can get a copy. If you do not have time, I have provided a few of the best, most insightful quotes below.
Extracts from the bible of value investing
"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 of the intrinsic value may be sufficient."
âIt appears to be a financial axiom that whenever there is money to invest, it is invested; and if the owner cannot find a good security yielding a fair return, he will invariably buy a poor one. But a prudent and intelligent investor should be able to avoid this temptation, and reconcile himself to accepting an unattractive yield from the best bonds, in preferences to risking his principal in second-grade issues for the sake of a large coupon return.âĂ
âSecurity prices and yields are not determined by any exact mathematical calculate not the expected risk, but they depend rather upon the popularity of the issue. This popularity reflects in a general way the investorsâ view as to the risk involved, but it is also influenced largely by other factors, such as the degree of familiarity of the public with the company and the issue (seasoning) and the ease with which the bond can be sold (marketability).â
âThe disadvantages of ignorance, of human greed, of mob psychology, of trading costs, of weighting of the dice by insiders and manipulators, will in the aggregate far overbalance the purely theoretical superiority of speculation in that it offers profit possibilities in return for the assumption of risk.â
âThe ownerâs natural reluctance to accept a large loss is reinforced by the reasonable belief that he would be selling the issue at an unduly low price, and he is likely to find himself compelled almost unavoidably to assume a speculative position with respect to that security.âĂ
âIt is natural to assume that industries which have fared worse than the average are âunfavorably situatedâ and therefore to be avoided. The converse would be assumed, of course, for those with superior records. But this conclusion may often prove quite erroneous. Abnormally good or abnormally bad conditions do not last forever. This is true not only of general business but of particular industries as well. Corrective forces are often set in motion which tend to restore profits where they have disappeared, or to reduce them where they are excessive in relation to capital.âĂ
âTrading in the market, forecasting next yearâs results for various businesses, selecting the best media for long-term expansion â all these have a useful place in Wall Street. But we think that the interests of investors and of Wall Street as an institution would be better served if operation based primarily on these factors were called by some other name than investment.âĂ
