Security Analysis - by Ben Graham 1934 Edition

[Saluki]

I read most (but not all) of my first copy of Security Analysis (5th Edition).  The formulas printed on the front and back inside covers are useful, but the book itself is just okay and it was a slog to read. I had a post it with the chapter numbers in the back and I would cross off each one as I read it. It was like a chore on my to do list.  The writing is mediocre.  Just as a camel is a horse designed by a committee, when something gets edited too many times, it's the book equivalent of a camel.  I bought the 6th Edition of Security Analysis and I like the essays at the beginning of the chapters by the different value investors, but I still wouldn't put at the top of my list of recommended books to learn about investing.  

 

I have a copy of the original 1934 edition, that was reprinted and has been sitting on my shelf for years, and I finally got around to reading it. I'm about 100 pages in, but I have to say that I like it a lot better than the modern editions. Graham is a good writer and his examples of the same stock at different points in time with wildly different values is so useful that people still use it today.  

 

One of the things he's known for is having a basket of net-nets.  People often asked if he could've gotten a better return by focusing on a select few which did well, instead of buying a large basket and not doing a lot of digging. It's not laziness that led him to the approach. He used a great analogy about a roulette wheel where the odds are 18/17 in favor of the house.  If the odds temporarily tilt in your favor by the same amount, then what is the best strategy?  The winning strategy is to bet on every number, and every round you will pay out $34 and get back $36.  Any strategy that differs from that will lower your return. If you make a large bet on one number, you can lose everything if you guessed wrong.  That analogy is remarkable useful for thinking about investing vs the SP500.  Like a roulette wheel, the index has a small number of winners that had a huge payout (Google, AMZN, AAPL) compared to the rest of the market.  The index is betting on every number in the roulette wheel.  It's a huge advantage you would have to overcome to beat it. The outcome in roulette is chance and unknowable, which is why the index is your best bet.  In Graham's time, it was hard to ferret out information about individual companies, so the returns would be the same as if they were random.  Now we have an incredible amount of information available, but the advantage of knowing that you are betting on those 500 companies and you already own all the future big winners is something to think about. 

 

A 90 year old book isn't on most people's reading list, but going to the original sources is a lot better than getting watered down retellings.  

[Fundmanagerthrwawy]

1 hour ago, Saluki said:

I read most (but not all) of my first copy of Security Analysis (5th Edition).  The formulas printed on the front and back inside covers are useful, but the book itself is just okay and it was a slog to read. I had a post it with the chapter numbers in the back and I would cross off each one as I read it. It was like a chore on my to do list.  The writing is mediocre.  Just as a camel is a horse designed by a committee, when something gets edited too many times, it's the book equivalent of a camel.  I bought the 6th Edition of Security Analysis and I like the essays at the beginning of the chapters by the different value investors, but I still wouldn't put at the top of my list of recommended books to learn about investing.  

 

I have a copy of the original 1934 edition, that was reprinted and has been sitting on my shelf for years, and I finally got around to reading it. I'm about 100 pages in, but I have to say that I like it a lot better than the modern editions. Graham is a good writer and his examples of the same stock at different points in time with wildly different values is so useful that people still use it today.  

 

One of the things he's known for is having a basket of net-nets.  People often asked if he could've gotten a better return by focusing on a select few which did well, instead of buying a large basket and not doing a lot of digging. It's not laziness that led him to the approach. He used a great analogy about a roulette wheel where the odds are 18/17 in favor of the house.  If the odds temporarily tilt in your favor by the same amount, then what is the best strategy?  The winning strategy is to bet on every number, and every round you will pay out $34 and get back $36.  Any strategy that differs from that will lower your return. If you make a large bet on one number, you can lose everything if you guessed wrong.  That analogy is remarkable useful for thinking about investing vs the SP500.  Like a roulette wheel, the index has a small number of winners that had a huge payout (Google, AMZN, AAPL) compared to the rest of the market.  The index is betting on every number in the roulette wheel.  It's a huge advantage you would have to overcome to beat it. The outcome in roulette is chance and unknowable, which is why the index is your best bet.  In Graham's time, it was hard to ferret out information about individual companies, so the returns would be the same as if they were random.  Now we have an incredible amount of information available, but the advantage of knowing that you are betting on those 500 companies and you already own all the future big winners is something to think about. 

 

A 90 year old book isn't on most people's reading list, but going to the original sources is a lot better than getting watered down retellings.  

I have the same thoughts about the modern additions and it felt like an up hill battle whilst reading for the same points you mentioned. it’s interesting that you find the original an easier/more enjoyable read as i had the same thoughts with the intelligent investor. Where did you find an original copy it might be worth having a look into it myself.

Cheers

[Saluki]

@Fundmanagerthrwawy they came out with a reprint of the original.  It's called Security Analysis The Classic 1934 Edition.

[Fundmanagerthrwawy]

Smashing.

Much appreciated.

I’ve just seen they also have reprint of the 1940 and 1951 editions. 

Edited September 14, 2023 by Fundmanagerthrwawy