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The Rediscovered Benjamin Graham (A series of Lectures)


Green King
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I Just finished reading this series of past lectures by Benjamin Graham. It seems I did not move too far from the source material. His ideas are refined absolute truths making them useful even today.  I will be posting some of the ideas that I like in the following days in the hope to generate greater interest. Enjoy everyone.

 

PDF: http://www.grahamanddoddsville.net/wordpress/Files/Gurus/Benjamin%20Graham/The%20Rediscovered%20Benjamin%20Graham%20Lectures.pdf

 

On Base human nature

 

In one important respect we have made practically no progress at all, and that is in human nature. Regardless of all the apparatus and all the improvements in techniques, people still want to make money very fast. They still want to be on the right side of the market. And what is most important and most dangerous, we all want to get more out of Wall Street than we deserve for the work we put in.

 

There is one final area in which I think there has been a very definite retrogression in Wall Street thinking.That is in the distinctions between investment and speculation, which I spoke about at the beginning of this lecture. I am sure that back in 1914 the typical person had a much clearer idea of what he meant by investing his money, and what he meant by speculating with his money. He had no exaggerated ideas of what an investment operation should bring him, and nearly all the people who speculated knew approximately what kind of risks they were taking.

 

 

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Thanks for sharing this, will definitely read this.

 

At first glance though, I think me might have been a more successful investor than husband  :o

 

The correct attitude of the security analyst toward the stock market might well be that of a man toward his wife. He shouldn't pay too much attention to what the lady says, but he can't afford to ignore it entirely. That is pretty much the position that most of us find ourselves vis-à-vis the stock market.

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Thanks for sharing.

I like this warning about over-detailed analyses.

 

A thing I would like to warn you against is spending a lot of time on over-detailed analyses of the company’s and the industry’s position, including counting the last bathtub that has been or will be produced; because you get yourself into the feeling that, since you have studied this thing so long and gathered together so may figures, your estimates are bound to be highly accurate. But they won’t be. They are only very rough estimates, and I think I could have given, and probably you could have given me, these estimates in American Radiator in half an hour, without spending perhaps the days, or even weeks, of studying the industry

 

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good to hear that you guys liked it.

 

On Good Leverage

 

In the case of General Shareholdings we have the following: This is the common stock of an investment

company, which has $21.5-million of total assets, with senior claims of $12-million, and a balance of about

$9.5-million for the common. The common is selling for $6,400,000 in the market. That means that in General

Shareholdings you have both a market discount from the apparent present value of the stock and an

opportunity to participate in a highly leveraged situation. For if you pay $6.4-million of the gross asset value;

and consequently every ten per cent of increase in total asset value would mean a 30 per cent increase in the

book value of the common.

 

Furthermore, you are practically immune from any danger of serious corporate trouble; because the greater

portion of the senior securities -- in fact, five-sixths of it -- is represented by a preferred stock on which

dividends do not have to be paid and on which there is no maturity date.

Consequently, in the General Shareholdings case, you have that typically attractive speculative combination

of (a) a low-price “ticket of entry” into a fairly large situation; and (b) instead of paying more than the

mathematical value of your ticket, you are paying less; and ©  if you assume that wide fluctuations are likely

to occur in both directions over the years, you stand to gain more than you can lose from these fluctuations.

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On Good Analysis

 

It is now becoming approved practice in any really good analysis to work out the future earning power along

somewhat independent lines, -- by considering afresh the most important factors on which the earning power

will depend. These factors in the ordinary case are not very numerous. They consist, first, of the physical

output or volume of business that you expect from the company. Secondly, the price, or unit price, that it will

get. Thirdly, its unit cost; and then, fourth, the tax rate. We now have a standard technique by which you go

through these various motions and set up these successive figures, -- all of which are estimates, of course. By

this operation you arrive at a conclusion as to future earning power. That is regarded, and should be regarded,

as a better technique than the simple one of merely taking the past earnings over a period of time.

 

Consequently, when you undertake a full-scale analysis of a security and want to determine whether it should

be bought or not -- I should say, frankly, whether it should be bought or sold -- your proper technique should

consist of estimating the future earning power along the lines that I have mentioned, and then applying a

multiplier to it which is influenced in part by your subjective ideas as to the security, but which has to be kept

within a reasonable range of variation

 

What he is really trying to do is to determine how

the analyst should act and think -- that is, how far he can go in logical thinking with respect to the always

enigmatic future.

I don't believe any of us have the pretension of believing that by being very good analysts, or by going

through very elaborate computations, we can be pretty sure of the correctness of our results. The only thing

that we can be pretty sure of, perhaps, is that we are acting reasonably and intelligently. And if we are wrong,

as we are likely to be, at least we have been intelligently wrong and not unintelligently wrong. (Laughter.)

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