Much of the value of Security analysis lies not in its specific instructions, but in its common sense.
People always ask me whats the financial market all about? I couldnt always quite grasp the words to describe it. With extensive reading, Ive felt my narrative changing throughout time and managed to build some vocabulary to synthesize financial concepts in eloquence and exhale confidence for a flowing conversation, few of which yield in a fruitful dialogue. The majority, however, wants simplicity, like: Buy business with value instead of stocks. However, no such concepts can be taught in a black and white manner, nor it is honorable to simplify magnanimous subjects. The first edition of this work was written at a time when investment management, in Mr. Marks words: Mostly meant working for a bank or insurance company. Investing, at that time, meant conservatism, prudence and safety. You couldnt track constantly digested prices or reports of myriad securities via Bloomberg terminals or the internet, construct elaborate excel spreadsheets, nor could you receive instant emails alerts whenever there was news. It almost conjures up sepia-tone images of a bygone era, where financial debacle, lack of prosperity and faith seemed to be the permanent order. Security analysis, as commonly referred to, is a method for evaluating business focused on identifying bargain-priced assets. In other words: Buying business selling for less than their intrinsic value justified by the facts, such as: Assets, earning, dividend and definite prospects as a protective measure against the unknown, artificial manipulation or psychological excesses. This investment philosophy, emphasizes the need to perform in-depth fundamental analysis, pursue long-term investment results, limit risk, resist crowd psychology and be safeguarded against room for error, imprecision, bad luck, or the vicissitudes of the economy and stock market. The founding fathers who so passionately elaborated, lived, lectured, preached and wrote about the value investing, are Mr. Benjamin Graham and David Dodds. Authors of many famous works such as the intelligent investor and the book Im currently writing about, made a profound impact on the study of assets and the world of investing. This is not a book about stock tips, about promise making nor it guarantee profits. Their main approach was, in their own words: Concepts, methods, standards, principles and, above all, with logical reasoning to stand the test of the ever-enigmatic future. The authors didactic and eloquence fondly reminds me of the great teachers Ive had, which made me delight about the use of language, ability to express ideas cogently, the inner workings, inexactness, elusive and cyclical concepts. Much emphasis has been laid upon distinguishing investment from speculative approach, like the traditional concept of permanent investment, the transition of a prewar period from accomplished past to looking forward, income vs profit, safety vs risk, the conventional position applied to gambling vs speculation, the comparative disadvantages between market analyst and security analyst, and so on. Honorable mentions you will find inside this work: relative popularity and market activity exerting continuing effect on market quotation, the lure of bull market, exaggerations of book value for artificially high quotation, the Securities Act of 1933 and adequacy of corporate statements, identifying financial weaknesses in balance sheets, the subject of liquidation and reorganization, bankruptcy and debt, surplus and accounting manipulations to relieve reported earnings, overstated and understated depreciations and other amortizations, extensive chapters on fixed income securities, the arbitrary management of reinvestment policies and dividend, and other thousand variables. Nevertheless, investors are human, thus subjected to the immoral logic of nature. Human nature, specifically for this atmosphere, has proven its ignorance, exaggeration, oversimplification, neglect, greed, mob psychology, hypocrisy, act upon self-benefit, scrutiny to reveal true integrity and character of corporate managements, abstinence of profits, marching in herds, pressure, doubt, lack of patience and the entire range of human emotions both of which, in the authors words: become opportunities for those who can steel themselves and are unafraid to stand alone. If Graham and Dodd are so widely read and respected, why are there so few disciplined practitioners of their advice? The covenant of protecting ourselves by a margin of safety seems to be the ultimate challenge. For example, the good use of available information can be subjected to constant new determining factors supervening the market adjustment by which the value, facts and reasoning may have changed considerably and may no longer be applicable. Intrinsic value, is therefore, an elusive concept and far from definite and determinable. Why does this subject fascinate me? I relish the cyclical phenomenon of Security Analysis not only for business, but for life itself. As with law and medicine, investing is but a discipline in which both skill and chance play a role. Although this function is adequately performed by standard statistics, fitch services and an entire range of marketable corporate securities, a more penetrating type of analysis aim to identify the evaporations of empires before it happens. Valuation is an art, not a science. Link to my highlights: https://drive.google.com/file/d/1csJXfXC14Suk-ixSX73AtCcrXFsRqGAi/view?usp=sharing Blest are those Whose blood and judgement are so well commingled That they are not a pipe for Fortunes finger To sound what stop she please. -Hamlet Act 3, Scene 2