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我与大师的对话--第一部
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BuySell






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文章时间: 2004-12-27 周一, 下午12:48    标题: 我与大师的对话--第一部 引用回复

The Intelligent Investor
by Benjamin Graham
commented by Jason Zweig
Preface and Appendix by Warren E. Buffett

introduction

The art of investment has one characteristic that is not generally appreciated. A creditable, if unspectacular, result can be achieved by the lay investor with a minimum of effort and capability; but to improve this easily attainable standard requires much application and more than a trace of wisdom. If you merely try to bring just a little extra knowledge and cleverness to bear upon your investment program, instead of realizing a little better than normal results, you may well find that you have done worse.
投资艺术的一个不广为人知特征:一点努力和能力能获得还不差的结果,但是提高这个能轻易达到的标准,则需要更多的实践和智慧。如果你只是学一点知识和耍小聪明,你不但达不到稍好的结果,反而发现你更差了。

Graham在简介中几次提到慎用他的投资方法,尤其不能一知半解,否则适得其反。
A strong-minded approach to investment, firmly based on the margin-of-safe principle, can yield handsome rewards. But a decision to try for these emoluments rather than for the assured fruits of defensive investment should not be made without much self-examination.

If you have built castles in the air, your work need not be lost; that is where they should be. Now put the foundations under them.


Chapter 1, Investment versus speculation: results to be expected by the inteligent investor.

An investment operation is one which, upon thorough analysis promises safety of principla and an adequate return. Operations not meeting these requirements are speculative. 投资操作就是通过透彻的(证券)分析确保本金的安全和足够的回报。rickless investor这样修辞用法是矛盾的。但投机并不非法,不道德,也不能(对大多数人来说)充实他们的钱包。投机是股市上不可或缺的。

-You must thorouoghly analyze a company, and the soundness of its underlying businesses, before you buy its stock;
-You must deliberately protect yourself against serious losses;
-You must aspire to "adequate", not extraordinary, performance.


防御型投资者,invest in high-grade bonds(corporate and government), leading common stocks.

激进型投资者,...These virtues(such as ambition), if channeled with wrong directioins, become indistinguishable from handicaps.

Everyone knows that speculative stock movements are carried to far in both directions, frequently in the general market and at all times in at least some of the individual issues.

Furthermore, a common stock may be undervalued because of lack of interest or unjustified popular prejudice.
Buying a neglected and therefore undervalued issue for profit generally proves a protracted and patience-trying experience. 等待和耐心

Bargain. buy cheap and sell dear. 贱取如粪土,贵出如珠玉。

Graham urges you to invest only if you would be comfortable owning a stock even if you had no way of knowing its daily share price. Twisted Evil

If you look at a large quantity of data long enough, a huge number of patterns will emerge-if only by chance. But unlesss those factors cause the stocks to ouperform, they can't be used to predict future returns.


Chapter 2, Investor and Inflation

通膨对固定利率的债券负面影响很大,现代经济学研究表明适度通膨有利于企业盈利。但过高通膨常使股票价格下挫十个百分点。

为避免通膨对投资回报的拖累,投资人可增持股票,将资金投入房地产,收藏品,珠宝等物。现代投资人又多两个选择:REIT(Real Estate Investment Trusts) and TIPS(Treasury Inflation-Protected Secrities),房地产信托基金和财政部防通膨债券。

_________________
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上一次由BuySell于2004-12-28 周二, 下午10:47修改,总共修改了3次
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文章时间: 2004-12-27 周一, 下午12:49    标题: 引用回复

下面几章中Graham不断从历史,宏观的角度讲述经济学上的投资。文中多次提到的保守型投资人是指不愿在投资上花费过多心思和精力的有钱有闲的一族。

Chapter 3, A Century of Stock-Market History: The Level of Stock Prices in Early 1972

Graham回顾了截止到1972年为止的百年股市兴衰,相应DJIA,SP500指数,dividend,earning的变化。

Our final judgment is that the adverse change in the bond-yield/stock yield ratio fully offsets the better price/earnings ratio for late 1971, based on 3-year earnings figures.

After the terrible experience suffered by the public buyers of low-grade common-stock offerings in the 1968-1970 cycle, it is too early (in 1971) for another twirl of the new-issue merry-go-arround. Hence that dependable sign of imminent danger in the market is lacking now..Techincally, then, the out-look would appear to favor another substantial rise far beyond the 900 DJIA level beore the next serious setback or collapse. .. He advised the investors must be prepared for difficult times ahead and the prediction was proven to be true.

The stock market's performance depends on three factors:
-real growth (the rise of comanies' earnings and dividends)
-inflationary growth (the general rise of prices throught the economy)
-speculative growth - or decline (any increase or decrease in the investing public's appetite for stocks)


Chapter 4, General Portfolio Policy: The Defensive Investor

The rate of return sought should be dependent on the amount of intelligent effort the investor is willing and able to bring to bear on his task. The maximum return would be realized by the alert and enterprising investor who exercises maximum intelligence and skill. 财富是智慧的结晶.

Issues about the proportion between stocks and bonds in the portfolio, the taxable and tax-free municipal allocation in bonds, short term and long term for tax reason.

One good advice he gave is to adjust stocks and bonds periodically to keep the proportion between them stable, as a result an investor locks his profits in a bull market and buys more in a bear market.


Chapter 5, The Defensive Investor and Common Stocks

Four rules for defensive investors:
1, Diversification: bigger than 10 and smaller than 30 stocks.
2, only select large, prominent, and conservatively financed companies. book value>1/2 of the total capitalization. rank 1/4 or 1/3 in size within its industry group.
3, long record of continuous devidend payments, longer than 20 years.
4, price less than 25 times of past 7 year earning, and less than 20 times of last twelve-month earning.

growth stocks which are expected at least to double its per-share earnings in ten year, i.e. at a compounded annual rate of over 7.1%, should be avoided by conservative investors. the average investor can no more expect to accomplish this wonder than to find money growing on trees. Sad

The kind of securities to be purchased and the rate of return to be sought depend not on the investor's financial resources but on his financial equipmenmt in ters of knowledge, experince, and temperament. 同样,保守型和激进型投资者与他们有多少钱,愿意承担多大风险无关。而是与他们愿意投入的时间和精力相关。

Many methods by Peter Lynch are contradictory with Graham's. Lynch mentioned many times about 10 fold, 100 fold bag holder in his books, which in Graham's eyes, is like finding money growing on the trees. Lynch's idea of buying stocks you are familar with is just a very rudiment first step and very illusive. His selection of hundreds of stocks is not possible for individual enterprising investors, even for professionals today.

_________________
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上一次由BuySell于2004-12-31 周五, 下午2:11修改,总共修改了3次
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文章时间: 2004-12-28 周二, 下午5:33    标题: 引用回复

Thanks a lot.
Waiting...
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文章时间: 2005-1-03 周一, 下午3:19    标题: 引用回复

Chapter 6, Portfolio policy for the enterprising investor: negative approach

In this chapter, Graham patiently told you what not to touch. No junk bond unless sold at 70% of its par value. No preferred stocks. No foreign bonds. No IPO.

The psychologists have shown when humans estimate the likelihood or frequency of an event, we make that judgement based not on how often the event has actually occurred, but on how vivid the past examples are. 领袖说的榜样的力量是无穷的。

Somewhere in the middle of the bull market the first common-stock flotations make their appearance. These are priced not unattractively, and some large profits are made by the buyers of the early issues. As the market rise continues, this brand of financing grows more frequent; the quality of the companies becomes steadily poorer, the prices asked and obtained verge on the exorbitant. One fairly dependable sign of the approaching end of a bull swing is the fact that new common stocks of small and nondescript companies areoffered at prices somewhat higher than the current level for many medium-sized companies with a long market history. Especally avoid IPO of full priced, second commmon stocks.


Chapter 7, Portfolio Policy for the Enterprising Investor: the Positive Side

Buy carefully chosen "growth stocks". Use earinig of past 5 years to calculate PE and avoid high pe and high price. only buy pe<25.

Recommended fields:
1, the relatively unpopular large company because of unsatisfactory developments of a temporary nature.

2, purchase of bargain issues, i.e. the value is at least 50% more than the price. price<current asset-liability.

3, special situations or workouts. take-over, undervalued bonds and companies in some kind of lawsuits

The aggressive investor must have a consideratable knowledge of security values-enough to warrant veiwing his security operations as equivalent to a business enterprise. There is no room in this philosophy for middle ground, or a series of gradations, between the passive and aggressive status.

Life can only be understood backwards-but it must be lived forwards.
Not all eggs in one basket.


Chapter 8, The Investor and Market Fluctuations

To buy stocks when they are quoted below their fair value and to sell them when they rise above such value.

Characterstics in the bull market: 1) historically high price level. 2) high PE ratio 3) low dividend yields as against bond yields 4) much speculation on margin, 5) many offerings of new common-stock issues of poor quality.

All things excellent are as difficult as they are rare. Timing, maybe possible only in a small group, is beyond his discussion.

Contradiction in stock market: the better a company's record and prospects, the less relationship the price of its shares will have to their book value. But the greater the premium above book value, the less certain the basis of determining its intrinsic value--i.e. the more this 'value' will depend on the changing moods and measurements of the stock markt. (前景越好的股票投机性越大)

A stock does not become a sound investment merely because it be bought at close to its asset value.(at not more than one-third above the tangible-asset value). The investor should demand, in addition, a satisfactory ratio of PE, a sufficiently strong financial position, and the prospect that its earnings will at least be maintained over the years.

The investor who permits himself to be stampeded or unduly worried by unjustified market declines in his holdings is perversely transforming his basic advantage into a basic disadvantage. Theat man would be better off if his stocks had no market quotation atall, for he would then bespared the mental anguish caused him by other persons' mistakes of judgement. (on the fact that the true investor scarcely is forced to sell his shares)(据说这是全书精髓) The stock market does not impose the current quotation on an investor who prefers to take his idea of value fom some other souce.

One example in internet boom: Inktomi sold from 231$, 250 times of its revenue, down to 25 cents, 0.35 times of its revenue. Then yahoo bought it 7 times of its stock price, probably got a bargain.

"Stocks became more attractive yet again today, as the Dow dropped another 2.5% on heavy volume-the forth day in a row that stocks have gotten cheaper. That comes on top of the good news of the past year, in which stocks have already lost 50%, putting them at bargain levels not seen in years. And some prominent analysits are optimistic that prices may drop still futher in the weeks and months to come. " Very Happy

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文章时间: 2005-1-07 周五, 下午12:19    标题: 引用回复

Chapter 9, Investing in Investment Fund

Don't choose funds on past performance because of: Migrating managers, asset elephantiasis, rising expenses, manager's sheepish behavior since he collects enough fee from increasing funding.

Good funds in common: their managers are the biggest shareholders; cheap fee; dare to be different; they shut the door(before the fund explodes in size); don't advitise(they often behave as if they don't want your money). The order of factors the intelligent investors investigate is: the fund's expense, the riskiness of the fund(the worst loss), the manager's reputation and last the past performance because this is the most unreliable.

Index fund is a good choice with one disadvantage: boring, as usually it is when making money.


Chapter 10, The investor and His advisers

Aggressive investors should want recommendations from advisors explained in detail, and pass their own judgement on them.

Free advice, in the majority of cases is not entitled to and should not expect better than average results. Much bad advice is given free. "Better safe than sorry" 跟风不要期望超过平均水平的收益。

If you have less than $100,000 to invest, you may not be able to find a fincial adviser who will take your account. Smile Finally, the best already havve as many clients as they can handle-and may be willing to take you on only if you seem like a good match. They will provide at least: comprehensive financial plan, investment policy statement and asset-allocation plan.


Chapter 11, Security analysis for the lay investor: general approach

Graham avoided numerous company bankrupcy on the bond market by comparing minimun ratio of earnings to tatal fixed charges among them, in the aspects of average past 7 years and "poorest year".

The now-standard procedure for estimating future earning power starts with average past data for physical volume, prices received, and operating margin. Future sales in dollars are then projected on the basis of assumptions as to the amount of change in volume and price level over the previous base. These estimates, in turn, are grounded first on feneral economic forecasts of gross natinoal product, and then on special calculations applicable to the industry and company in question.

Factors Affecting the Capitalization Rate精华来了。
1, The long-term prospects.
negative side: the company is a 'serial acquirer'. i.e. an average of more than 2-3 acquisitions a year is a sign of potential trouble; the company is an OPM addict, borrowing debt or selling stock to raise boatloads of Other People's Money(money from financial activities on the statement of cash flows); relyes on one big customer.
Positive side: wide 'moat'. for example: brand identy, monopoly, economies of scale, a unique intangible asset, a resistance to substitution(such as utility companies); the company is a marathoner, not a sprinter(grow steadily over more than 10 year, maybe with a rate of 6,7% per year after tax); It sows and reaps.(R&D)

2, The quality and conduct of management.
Be careful with 'option overhang' and repricing its options for insiders in the annual report; Executives shoud spend most of their time managing thieir companiy in private, not promoting it to the investing public; Transparent account.
The management factor is most useful, we think, in those cases in which a recent change has taken place that has not yet had the time to show its significance in the actual figures.

3, Financial strength and capital structure.
real owner earnings(cautious of option and nonrecurring charges); long term debt should be under 50% of total capital, better fixed-rate; companies buy back when prices are low, not when overpriced.

4&5, Dividend Record(>20 years) and Current dividend rate(2/3 of earnings?)

Value=Current Earnings*(8.5+2*the expected annual growth rate for next 7-10 years)

A two-part appraisal process to common stocks: first part is based solely on the past record(profitability, stability and growth also for current financial condition)-"past-performance value". The second part of the analysis should considerto what extent the value based solely on past performance should be modified because of new conditions expected in the future.

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文章时间: 2005-1-11 周二, 上午12:14    标题: 引用回复

Chapter 12, Things to Consider About Per-Share Earnings

You shoud read at least 5 year annual reports and one year quarterly reports. If the steps sound like too much work to you, then you are not temperamentally well suited to picking your own stocks. You cannot reliably obtain the results you imagine unless you put in the kind of effort we describe.

We suggest that the growth rate itself be calculated by comparing the average of the last three years with corresponding figures ten years earlier and also deal with special charges or credits in the three years.

Account tricks: pro forma earning fad; account change; non-recurring cost; capital offense(changing from operating expense to capital expenditure-thereby increasing the company's total assets, instead of decreasing its net income); inventory write-off; income from pension adjust. When reading statemants, be sure to read backwards; read notes; read more financial materials.


Chapter 13, A Comparison of Four Listed Companies

In two tables, Graham compared the four companies in the following items.
A, Capitalization
Price of stock, number of shares: market value; bonds and preferred stock: Total capitalization
B, Income items
sales, net income, earned per share(current year), earning per share (average of recent 3 years), earning per share (average of prior 5-8 years),earning per share (average of prior 10-13 years), current dividend
C, Balance-sheet items
current asset, current liabilities, net assets for common stock, book value per share.
D, Ratios
PE, PE (recent 3 years), Price/Book value, net earning/sales, net per share/book value, dividend yield, current assets to current liabilities, working capital/debt, earnings growth per share: recent 3 years vs. prior 5- 8 years, recent 3 vs. prior 10-13 years.
E, Price Record
recent 30 years high and low, current year high and low.

These factors fall into five categories, as stated in chapter 11, security analysis: profitability, stability, growth, financial position, dividends and price history.


Chapter 14, Stock Selectioin for the Defensive Investor

1, adequate size of the enterprise. annual sales>100m for an industrial company, total assets>50m for a public utility.
2, a sufficiently strong financial condition. current assets>2*current liability, long-term debt<net current asset(working capital). For public utilities, debt<2*stock equity.
3, earnings stability. each year for past ten years.
4, dividend record. uninterupted for last 20 years.
5, earnings growth. A minimum increase of at least one-third in per-share earnings in the past ten years using three-year averages at the beginning and end.
6, moderate PE ratio. <15 times average earnings of thepast three year. A overall earnings/price ratio should at least as high as the currrent high-grade bond rate--10 year, AA-rated corporate bonds.
7, moderate ratio of price to assets(book value). <1.5. PE*PB<22.5 is ok.

The ratio of current asserts to current liabilities is excluded from the criterion for our tests of public-utility stocks since the working capital factor takes care of itself in this industry. We do require an adequate proportion of stock capital to debt.

We were not willing to accept the prospects and promises of the future as a compensation for a lack of sufficient value in hand.

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文章时间: 2005-1-21 周五, 下午4:56    标题: 引用回复

Chapter 15, Stock Selection for the Enterprising Investor

Summary of the Graham methods
1, Arbitrages.(buy and sell exchangable securities)
2, Liquidations.(清算获利)
3, Related Hedges. (buy notes and sell stocks simultaneously)
4, Net-Current-Asset Issues(working capital bargains).
He discontinued the purchase of apparently attractive issues which were not obtainable at less than their working-capital value alone. The enterprising investor would more likely be the buyer of important cyclical enterprises-such as the near-term prospects are poor and the low price fully reflects the current pessimism.

A winnowing of the stock guide:
1, Financial condition: current assets>=1.5* current liabilities; debt<=1.1* net current assets(industrial companies)
2, earning stability: no deficit in the last five years.
3, dividend record: has
4, earnings growth: better than 5 years ago.
5, price: less than 1.2*net tangible assets.

net working capital=current asset-Total liabilities.

ROIC: return on invested capital. An ROIC of at least 10% is attractive; even 6-7% can be tempting if it has good brand names, focused management, or is under a temporary cloud.
ROIC=owner earnign / invested capital
Owner earnings: operation profit + depreciation + depreciation + amortization of goodwill - tax - cost of stock options(<3% of shares outstanding) - "maintenance" capital expenditures - any income generated by unsustainable rates of return on pension funds(as of 2003, anything greater than 6.5%)
Invested capital: total assets - cash(as well as short-term investments and non-interest-bearing current liabilities) + past accounting charges that reduced invested capital.

Best of all, tracking the outcome of all your stock picks will prevent you from forgetting that some of your hunches turn out to be stinkers. Thet will force to learn from your winners and your losers. Successful investing professionals have two things in common: first, they are displined and consistent, refusing to change their approach even when it is unfashionable. Second, they think a great deal about what they do and how to do it, but they pay very little attention to what the market is doing.

Buffett Looks for what he calls 'franchise' companies with strong consumer brands, easily understandable businesses, robust financial health, and near-mono;olies in their markets, like HRB, Gillett, and the Washington Post. Buffett likes to snap up a stock when a scandal, big loss, or other bad news passes over it like a storm cloud-as when he bought Coca-Cola soon after its disastrous rollout "New Coke" and the market crash of 1987. He also wants to see managers who set and meet realistic goals; build their businesses from within rather than through acquisition; allocate capital wisely; and do not pay themselves hundred-million-dollar jackpots of stock options. Buffett insists on steady and sustainable growth in earnings, so the company will be worth more in the future than it is today.

All Roads Lead To Jerusalem. to Rome and Beijing too. Very Happy


Chapter 16, Convertible Issues and Warrants

Convertible securities alsways come out of the woodwork near the end of a bull market-because even poor-quality companies then have stock returns high enough to make the conversion feature seem attracive. They may outperform the declining stock market, but they have typically underperformed other bonds.

For individual investors, covering your downside is never worth surrendering most of your upside. (means selling covered calls)


Chapter 17, Four Extremely Instructive Case Histories

1, The Penn Central Case. The simplest rules of security analysis and the simplest standards of sound investment would have revealed the fundamental weakness of it: its earning is only 1.9 time of bon interest rate; the profit was suspecious because it didn't pay income tax; it used account method(nonrecurring charge) to turn loss to profit; margin was falling.
Security analysts should do their elementray jobs before they study stock-market movements, gaze into crystal ball, make elaborate mathematical calculations, or go on all-expense-paid field trips.

2, LTV Inc. It accumulated huge debt during its expansion period and finally turned into big loss(<0.2 * earnings). Its interest charges did not meet conservative standards, so did the ratio of current assets to current liabilities and of stock equity to total debt(>2 for both). The bank loans did harm instead good to the company.

3, NVF. the accounting gimmicks

4, AAA Enterprise(IPO of a worthless company). The high quotations were based on enthusiasm and hope- out of proportion to reality and common sense.
The speculative public is incorrigible. It will buy anything, at any price, if there seems to be some 'action' in progess, when the particular fashion is raging.

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文章时间: 2005-1-24 周一, 上午5:29    标题: 引用回复

Chapter 18, A Comparison of Eight Pairs of Companies

Poor stocks can raise faster than good ones, just drop much faster.

Items he compared: Total capitalization at market, Debt, Book value per share, Sales, net income, Earning per share this year, 5, 10 years ago, Dividend rate, Ratio including: PE,PB,Dividend yield, Earning/Book value, current assets/liabilities, working capital/debt, Growth in per-share earnings(current year vs 5 years ago, current year vs. 10 years ago). Growth, net/sales are more important; Price/Book value is less. Growth in its central business is more valuable.

Most security analysts try to select the issues that will give the best account of themselves in the futre, in terms chiefly of market action but considering also the development of earnings. We are frankly skeptical as to whether this can be done with satisfactory results. Our preference for the analysit's work would be rather that he should seek the excetional or minority cases in which he can form a reasonably confident judgment that the price is well below value. He should be able to do this work with sufficient expertness to produce satisfactory average results over the years.


Chapter 19, Shareholders and managements: divident policy

It can be stated as a rule with very few exceptions that poor managements are not changed by action of the "publick shareholders", but only by the assertion of control by anindividual or compact group(by take over for example).

The objective of efficient operation is to produce at low cost and to find the most profitable articles to sell. Efficient finance requires that the stockholders' moeny be working in forms most suitable to their interest. The management always wants as much capital from the owners as it can possible get, in order to minimize its own financial problems. The proxy statement may reveal that executives take profit conflicting doube roles in companies.

Stock buyback increases stock price volatility; dividend makes price less volatile and dividend increases lead to higher future stock returns statistically. Stock buy back often is connected with the options issued to the managers, to reduce the dilution by options, and to increase the price volatility thus increase option value.


Chapter 20, "Margin of Safety" as the central concept of investment

Observation over many years has taought us that the chief losses to investors come from the purchase of low-quality securities at times of favorable businss conditions. At that time, common stocks of obscures companies can be floated at prices far above the tangible investment, on the strength of two or three years of excellent growth.

Most of the fair-weather investments, acquired at fair-weather prices, are destined to suffer disturbing price declines when the horizon couds over- and often sooner than that. Nor can he count with confidence on an eventual recovery. The margin of safety is always dependent on the price paid. It will be large at one price, small at some higher price, nonexistent at some still higher price. The buyer of bargain issues places particular emphasis on the ability of the investment to withstand adverse developments.

To sum up, investment is most invelligent when it is most businesslike. The first and most obvious of these principles is, "know what you are doing-know your business." A second business principle: "Do not let anyone else run your business, unless (1) you can supervise his performance wth adequate care and conmprehension or (2) you have unusually strong resons for placing implicit confidence in his integrity and ability." A third business principle :"Do not enter upon an operation-that is, manufacturing or trading in an item-unless a reliable calculation shows that it has a fair chance to yield a reasonable profit. In particular, keep away from ventures in which you have little to gain and much to lose." A forth business rule is more positive: "Have the courage of your knowledge and experience. If you have formed a conclusion from the facts and if you know your judgment is sound, act on it - even though others may hesitate or differ."

To achieve satisfactory investment results is easier than most people relize; to achieve superior results is harder than it looks.

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Postscript

Graham put 25% of his fund into a single stock whose price increased more than 200 times, you might think he was gambling rashly with his investors' money. But then, when you discover that Graham had painstakingly established that he could liquidate it for at least what he paid for it, it bacomes clear that Graham was taking very little financial risk. But he needed enormous courage to take the psychological risk of such a big bet.

Behind this luck, or the crucial decision, there must usually exist a background of preparation and displined capacity. One needs to be sufficiently established and recognized so that these opportunities will knock at his particular door. One must have the mean, the judgment, and the courage to take advantage of them.


Appendixes
The superinvestors of Graham-and-Doddsville

Buffett gave several examples to illustrate the investment philosophy of Graham--"look for values with a significant margin of safety relative to prices". One of his example is a friend of his who is a Harvard Law graduate, who set up a major law firm. Buffett ran into him in about 1960 and told him that law was fine as a hobby but he could do better. He set up a partnership and his portfolio was concerntrated in very few securities but it was based on the same discount-from-value approach.

In this value investing, risk and reward are correlated in a negative fashion. It is safer, instead of rickier, to buy 400 million worth of properties for 40 million than 80 million. And, as a matter of a fact, if you buy a group of such securities and you know anything at all about business valuation, there is essentially no risk in buying 400 million for 80 million, particularly if you do it by buying ten 40 million piles for 8 million each. Since you don't have your hands on the 400 million, you want to be sure you are in with honest and reasonably competent people, but that's not a difficult job. You also have to have the knowledge to enable you to make a very general estimate about the value of the underlying busineees.


The new speculation in common stocks

If, as many tests show, the earnings multiplier tends to increase with profitability-- i.e., as the rate of return on book value increases--then the arithmetical consequence of this feature is that value tends to increase directly as the square of the earnings, but inversely the book value. It is good to measure how much extra price have paid for the extra earning above the industrial average.

When the company itself is speculative and its credit low, the common stock is of course highly speculative. At the another extemity, however, where the company has the highest credit rating because both its past record and future prospects are most impressive, we find that the stock market tends more or less continuously to introduce a highly speculative element into the common shares through the simple means of a price so high as to carry a fair degree of risk.

It would be the center area where the speculative element in comon-stock purchases would tend to reach its minimum. Because of the present tendency of investors and speculators alike to concentrate on more glamorous issues, these middle-ground stocks tend to sell on the whole rather below their independently determinable values. They thus have a margin-of-safety factor suplied by the same market preferences and prejudices which tend to destroy the margin of safety in the more promising issues.


Margin of safety in your life

It is faith rather than reason that answer the question whether God exists or He does not. Suppose you act as though God is and you live a life of virtue and abstinence, when in fact there is no god. You will have passed up some goodies in life, but there will be rewards as well. Now suppose you act as though God is not and spend a life of sin, selfishness,and lust when in fact God is. You may have had fun and thrills during the relatively brief duration of your life time, but when the day of judgment roll around you are in big trouble.

So go to find a Bible-based church and it is in God we trust.

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