by Benjamin Graham and Spencer B. Meredith is a book full of invaluable wisdom from the founding father of value investing, as so aptly stated on the cover. Many should already be familiar with Benjamin Graham from his work INTELLIGENT INVESTING. Really committed stock market traders have certainly also read THE SECRETS OF SECURITIES ANALYSIS by him. Together with the latter book, this work was used here in the courses on securities analysis of the New York Stock Exchange Institute.
It is the reworking of the classic edition from 1937 and in this case, too, I am very grateful to Börsenbuchverlag for making such timeless and high-quality knowledge available again. Interestingly enough, Benjamin Graham's statements and thoughts are still valid today and we as readers can learn from the founding father of value investing. His most famous disciple, however, is and remains Warren Buffett.
In this work, the two authors teach us various business ratios and financial terms in a practical and easy-to-understand manner. It is not as in-depth as his joint project with David L. Dodd, but a little more focused on the basic knowledge for a fact-based and value-oriented company analysis. Accordingly, it is also a bit more suitable for beginners who would be bludgeoned by his advanced book.
"Whether you're a Graham disciple, a value investor, a growth investor or a momentum investor, I think you can agree that the price of a stock has to be related to its financial ratios. Sometimes investors ignore basic numbers like book value, cash flow, interest rates and various ratios that fundamentally determine the value of a stock. Especially in times of exuberance or fear, investors move away from fundamentally based methods of successful investing. If investors know how to read basic financial data, it should strengthen their focus, thereby avoiding costly mistakes, and it will also help them uncover the hidden values of Wall Stress."
Michael F. Price (From the Foreword)
In the first part of the book, the authors explain the typical components of balance sheets and income statements. These are then illustrated in the second part of the book using Bethlehem Steel Corporation as an example. At many points I felt transported back to my lectures. If you lack the necessary background knowledge, however, you will find explanations of all the important financial terms in the extensive glossary.
"This book is designed to enable them to read and understand financial statements. Financial statements are intended to provide an accurate picture of the condition of a company and its operating results in a clear manner. Everyone involved in business and securities has reason. To read balance sheets and income statements."
Benjamin Graham
Benjamin Graham is considered the founder of fundamental securities analysis and has undoubtedly written some of the best financial books of all time. This book is definitely one of them. With his work, he provided the basis for modern value investing, which his students have further developed. Thus, the US economist was one of the most influential investors of his time.
This book was published shortly after the financial book par excellence (INTELLIGENT INVESTING). At a time when investors were leaving the stock market in droves. Value investors have always appealed to investors with an understanding of company metrics and financial statements to examine the stocks in their portfolio and analyze potential new ones. It is an unemotional and laborious process that requires not being swayed by the confusion of the markets, having staying power and, of course, understanding the tools of the trade.
HOW TO READ CORPORATE FINANCIAL STATEMENTS guides you through essential parts of this process. First of all, through all components of the balance sheet, but also through the income statement. There are certainly many works on this subject, which is why the supplements and explanations are particularly interesting. In the end, annual reports, financial statements, press releases on costs, reserves and report revisions should no longer be a closed book for readers.
In the end, everyone will be able to benefit from the explanations, whether a beginner or an experienced stock market trader.
"Our approach is to deal sequentially with the components that go into a typical balance sheet and a typical income statement. In doing so, we first clarify what is meant by a particular term or phrase, and then we briefly explain its significance to the overall picture. Whenever possible, we suggest simple benchmarks or checks that investors can use to determine whether or not what a company is reporting in a particular respect is beneficial. Much of the material covered may seem very simple, and in fact the analysis of financial statements is a comparatively straightforward matter. However, even with the basic aspects of the subject, there are specifics and pitfalls that are essential to recognize and guard against."
Benjamin Graham
It is always a great pleasure for me to be able to read such time-honored works and to profit from the knowledge of the centuries. How wonderful it is that we can learn from Benjamin Graham in such a way, although he is long gone. This book is certainly one of the best when it comes to understanding business analysis. Maybe not every beginner will understand everything right away, but that's what the glossary is for and furthermore it should be noted that value investing is just not a sensible approach for beginners either. We are talking about analytical skills of an accountant in combination with the entrepreneurial understanding of an investor. Certainly not something you could learn overnight and a topic where you should learn from the best.
I would like to close the review with a clear and reflective statement from Benjamin Graham himself:
"Of course, the success of an investment ultimately depends on future developments, and the future can never be predicted accurately. But when you have accurate information about a company's financial position and past performance, you are better equipped to assess its future opportunities. And therein lies the essential function and value of securities analysis."
Benjamin Graham