Security Analysis 7th edition - Benjamin Graham

[wescobrk]

I just placed my order. If someone else has already posted about this book, let me know and I will delete this link.

‘Foreword by Buffett, also, Todd is one of the contributors.

[NnnnotSoSmart]

Seth Klarman apparently edited the new edition.  He was interviewed on CNBS this morning:

https://www.cnbc.com/video/2023/06/27/legendary-investor-seth-klarman-on-investing-challenges-weve-been-in-an-everything-bubble.html

https://www.cnbc.com/video/2023/06/27/legendary-investor-seth-klarman-on-investing-look-for-the-most-inefficient-pockets-in-the-world.html

[Morgan]

I just received my copy of the 7th edition. Klarman was also involved in the 6th edition. I don't think as an editor, but as a commenter. I don't have that edition, so I'm not sure exactly. 

 

After I read The Intelligent Investor (in 2006 I think), I got the first edition of Security Analysis and read a lot of it. Both books really formed my thinking on investing like many here. I'm looking forward to reading this new 7th edition.  

[CorpRaider]

Let us know how you find it, if it's not too much trouble.  I have never been a fan of the prior editions, but I did think Margin of Safety was pretty good.  I suppose I would have to get the hard copy.

Edited June 27, 2023 by CorpRaider

[Morgan]

Margin of Safety is a good read as well. If you search for it with PDF you'll find it online easily. 

 

It's going to take a while to read Security Analysis so don't expect to hear back very soon lol  

[ElstonG]

Would love to read Todd's essay if anyone ever finds an excerpt/link to it. I don't need another copy of the full book so probably wouldn't buy it just for that (but will definitely grab from a library once available!).

[John Hjorth]

I ordered the 7^th Edition a few days ago, based on what I have read about it on Twitter and Substack.

[Saluki]

I have 3 editions, but I'm probably going to order this too. I bought whatever the current edition was in 2000, then bought the new one after. Then I bought a reprint of the original edition which I decided to read but never got around to. I know I have a book problem but compared to gambling, drugs or fight club it's not so bad. 

[John Hjorth]

5 hours ago, Saluki said:

I have 3 editions, but I'm probably going to order this too. I bought whatever the current edition was in 2000, then bought the new one after. Then I bought a reprint of the original edition which I decided to read but never got around to. I know I have a book problem but compared to gambling, drugs or fight club it's not so bad. 

 

@Saluki,

 

I have to say, you're just my kind guy! Yes, it could be a lot worse, including "Wein, weib und gesang", also ref. Charles Mungers comments about leverage, liquor and ladies. I think it's called being a bookworm.

[ValueMaven]

I bought it as well - frankly just to read the Combs essay 

[Morgan]

@ElstonG, @ValueMaven 

 

I read through Combs essay and it was good. It was essentially an outline of his research process. See my notes below.

1. Find a good business
   1. Quantitative - What is the competitive advantage or moat? He starts with reading SEC filings, 10Ks and Qs, and trade magazines. Don't bother with management narratives or sell side reports. He says, ROIC is usually a reliable shorthand for the quality of a business. Use 10 years of data to see how earnings power has changed over time. Has the company's retained earnings been flat for ten years, but the debt has increased? That means the company needs to run harder just to stand still. Are the accounting practices aggressive or conservative? Is the debt all short term, or long term fixed? 
   2. Qualitative - scuttlebutt to see what the company culture is really like, and to see how the company's products are really selling now. 
2. Good management
   1. Look at management and assess their record. He says, "you cannot make a quantitative deduction to allow for an unscrupulous management; the only way to deal with such situations is to avoid them". (Sardar anyone lol). Is the CEO all promotion or working on the business daily? Good capital allocation is crucial. Review the proxy statement over time to understand management incentives. Speak to former executives to see how the company culture is. 
3. Buy at a good valuation 
   1. The price from the past doesn't matter. Only what matters is the fundamentals compared to the current financial community's appraisal of the stock. A note on compounding - a three fold increase in compound rate (5% to 15%), leads to an almost twentyfold increase in returns over 30 years. 

 

 

I'll try to add more notes from the book as I read more. 

 

Morgan 

[Maverick47]

On 7/10/2023 at 8:21 PM, Morgan said:

A note on compounding - a three fold increase in compound rate (5% to 15%), leads to an almost twentyfold increase in returns over 30 years. 

Charlie Munger made a similar observation applicable to compounding investments inside taxable accounts.  Something like the difference between making investments that would return 15% annually (but selling at the end of each year, thus paying capital gains tax each year) and letting a 15% return investment ride untouched for thirty years and only paying the long term capital gains tax at the end, with the after tax result being  truly eye-popping.  He talks about the after tax benefit you get from merely “sitting on your ass” while staying invested in great companies.  This “turnover issue” isn’t a concern for investments made in tax sheltered or deferred accounts, but it can be something to keep in mind for taxable brokerage accounts.

 

And it helps to have folks who are managing investments on our behalf at the corporate level who understand this as well. 

Edited July 31, 2023 by Maverick47
Clarity

[Morgan]

3 hours ago, Maverick47 said:

Charlie Munger made a similar observation applicable to compounding investments inside taxable accounts.  Something like the difference between making investments that would return 15% annually (but selling at the end of each year, thus paying capital gains tax each year) and letting a 15% return investment ride untouched for thirty years and only paying the long term capital gains tax at the end, with the after tax result being  truly eye-popping.  He talks about the after tax benefit you get from merely “sitting on your ass” while straying invested in great companies.  This “turnover issue” isn’t a concern for investments made in tax sheltered or deferred accounts, but it can be something to keep in mind for taxable brokerage accounts.

 

And it helps to have folks who are managing investments on our behalf at the corporate level who understand this as well. 

This is absolutely correct. 12% vs 15% is a huge difference after 30 years. This is a classic quote from Munger.