by Benjamin Graham & David L. Dodd is, in my opinion, the most comprehensive and valuable book for all value investors. The foreword for this truly powerful book could be written by none other than Warren Buffett, who famously was an apprentice to Benjamin Graham. Graham is considered the father of securities analysis and brings together in this book everything value investors need to know.
This is definitely not a book for beginners. It is neither easy to read nor inexpensive. In addition, it is incredibly extensive and requires some financial knowledge. As a beginner, you will probably just struggle through the chapters. Therefore: Hands off if you Invest intelligently by Benjamin Graham or has not yet read a comparable work. It is also not the right book if you want to do securities analysis on the side. You should have the ambition to use it as a central element in active investing from now on.
"It is not, however, intended for the beginner, as it assumes some acquaintance with the terminology and basic concepts of finance theory."
Benjamin Graham & David L. Dodd
It is true that the chances of success in active investing are generally quite low. Nevertheless, from a scientific point of view, the value approach is probably the only one that seems to make sense in the hunt for excess returns. The principle is easy to explain: One analyzes securities and checks whether their currently traded price corresponds to a value justified in one's own judgment. Benjamin Graham and Co. then usually add a safety buffer of 25 percent. If the stock still appears undervalued, it is bought and held in the portfolio until the situation changes fundamentally.
Sounds simple, but it is not at all. Most analyses are based on future forecasts, the value of which can be questioned very critically. Some other authors describe the mere attempt to achieve excess returns as a losing game, as Gerd Kommer does in his book Sovereign Investing.
"An analysis requires the conscientious study of all available facts with the claim to be able to draw conclusions from them and on the basis of accepted principles and conclusive logic. This is a scientific method. But analysis of securities is hampered by the fact that investment is not, by its very nature, an exact science. The same is true of jurisprudence and medicine; in these, too, both individual skill (artistry) and chance play an important role in determining success or failure. Nonetheless, in these professions analytics is not only helpful but also irreplaceable, so this is likely to be assumed also with respect to investments and possibly likewise with respect to speculation."
Benjamin Graham & David L. Dodd
Are you aware of the fact that structural and sustainable excess returns - especially after deducting opportunity costs due to the enormous time investment - rather belong to the realm of wishful thinking? But you still enjoy analyzing and actively investing in securities? Then you will find here probably the best work on the subject. And it's been around for over 70 years. That's how long this book has existed and has been passed on and updated from generation to generation.
With regard to age, however, there is no need to worry. The financial markets have not changed so fundamentally that such a universal approach could no longer be useful. Quite the contrary: the essential drivers will probably remain the same forever. Thus, the art of securities analysis will always remain an interesting subject area for stockbrokers.
"[Benjamin Graham and David Dodd] provide an investment plan that I have followed for 57 years. There has never been a reason to change that plan."
Warren Buffett
In my opinion, anyone who actively invests should definitely have worked through this book. Sometimes I am surprised that especially beginners trade actively, but get their financial knowledge mainly from the Internet and a few beginner's works. There would be too much money at stake for me personally due to ignorance.
"There are four books in my crowded library that I hold in very high esteem. They were all written more than 50 years ago. Yet each of them would be of enormous value to me even if I were reading it for the first time today. Their wisdom remains, even though the paper is fading. Two of these books are first editions of The Wealth of Nations (1776) by Adam Smith and Invest intelligently (1949) by Benjamin Graham. A third is the original edition of the book you are holding in your hands right now: Security analysis by Graham and Dodd. I studied this book while I was still at Columbia University in 1950 and 1951, when I had the extraordinary good fortune to have Ben Graham and Dave Dodd as teachers. The book and these two men changed my life."
Warren Buffett
The version I was privileged to read is a complete and extensive revision. In all current editions of old Benjamin Graham books, readers can look forward to a large number of annotations, classifications and footnotes. This is intended to explain references made at the time, to apply them to our present day, and generally to aid understanding. Due to an increased number of examples and all these annotations, the volume of the editions successively increased.
The book is generally aimed at those investors who have a serious interest in the valuation of securities. The scope of the book is much broader than the title suggests at first glance. It does not only deal with the methods of analysis for individual securities. It also deals with the establishment of general guidelines for the selection and hedging of securities. A fundamental distinction between investment and speculation should also not be missing in Benjamin Graham publications.
"Our predominant goal, however, has been to make this work critical rather than descriptive. We are primarily concerned with concepts, methods, standards, principles, and, above all, logical reasoning. In emphasizing theory, its practical utility is relevant. Further, we have avoided prescribing guidelines that are difficult to follow or technical procedures that cause more problems than they help."
Benjamin Graham & David L. Dodd
In the end, I must belatedly thank Benjamin Graham for his comprehensive and conscientious work around securities analysis and give his book the appropriate rating. He was a pioneer and trailblazer in his guild. It is remarkable that his words and thoughts still have so much impact today. A piece of financial history and at the same time a valuable book for those who - for whatever reason - want to actively invest in the market and handpick stocks. But just after a sound analysis and no coffee scratching or any lists of financial bloggers.